The Federal Reserve's two-day policy meeting commenced on April 28th in Washington, D.C. This meeting is highly anticipated to be the final one chaired by Jerome Powell.
Market consensus expects the Fed to maintain the current overnight interest rate. Beyond the rate decision, key focuses for this meeting include the pace of concluding the balance sheet runoff, the impact of oil price volatility on inflation, potential policy shifts stemming from the leadership transition following the Wash nomination hearing, and whether Powell will resign from the Board of Governors.
**Policy Stance** According to the CME Group's FedWatch tool, futures market pricing suggests a near-zero probability of a rate cut, influenced by inflation shocks, the Iran conflict, and labor market uncertainties. Since the escalation of the Iran conflict in late February, rising international oil prices have driven sharp increases in gasoline and jet fuel costs. The U.S. Consumer Price Index rose 3.3% year-over-year in March, with energy commodities surging 10.9% month-over-month and gasoline prices jumping 21.2%. Many employers have paused hiring plans, and consumer confidence has fallen to a record low. The conflict has disrupted shipping through the Strait of Hormuz, pushing up prices for oil and commodities like fertilizers, petrochemicals, and aluminum. Economists worry a prolonged conflict could destabilize the already fragile labor market. The Trump administration's broad tariffs and tighter immigration policies are seen as primary reasons for last year's labor market weakness. While Trump recently announced an indefinite extension of the ceasefire with Iran, the U.S. naval blockade of Iranian ports remains in effect. Goldman Sachs estimates that a 10% rise in oil prices pushes core CPI up by approximately 0.1 to 0.2 basis points, with the effect diminishing over time and unlikely to immediately threaten the Fed's inflation control goals in the short term. However, the Fed's preferred Personal Consumption Expenditures inflation gauge is projected to rise to 3.7% in Q2, 3.4% in Q3, and 3.2% in Q4. These forecasts are about 30 basis points higher than end-March estimates, remaining significantly above the 2% target and heightening risks of inflation expectations becoming unanchored. Boris Schlossberg, Macro Strategist at BK Asset Management, stated that focus should be on whether the FOMC policy statement removes the "transitory" description of inflation. "Even if the oil price surge subsides, price levels remain elevated. Multiple signs indicate the window for appropriate timing to restart rate cuts has closed for the short term," he analyzed. Concurrently, the U.S. labor market continues to show a balanced state of "low hiring, low layoffs." The March unemployment rate was 4.3%, but job growth is concentrated in few sectors, indicating widespread employer caution regarding expansion. Nancy Vanden Houten, Chief U.S. Economist at Oxford Economics, said, "Since the conflict erupted, labor market resilience has weakened slightly, but recent initial jobless claims data show no cracks yet. However, we believe the impact of the oil price spike on the labor market will take time to appear in the data." Powell remarked this month that, following conventional practice, the Fed should "look through" oil price shocks as they are typically short-lived. The key, however, is preventing the public from forming high inflation expectations. He stated the Fed does not need to make an immediate rate decision currently, "We are still uncertain about the economic impact of the Iran conflict; the current policy stance is appropriate, allowing us to watch developments." Bank of America economists noted, "The April Fed meeting will firmly hold rates steady. Inflation upside risks from the U.S.-Iran conflict persist; labor data has improved. The key question is whether forward guidance language will indicate policy risks are 'two-sided.' We think not, but the margin is slim. Powell is expected to strike a hawkish tone." Deutsche Bank expects limited overall changes to the post-meeting policy statement. Recent economic data continues to affirm the Fed's prior assessment: "solid" growth, "modestly soft" job gains, "largely unchanged" unemployment, and inflation "still elevated." Any adjustment in language regarding future policy adjustments, potentially characterizing risks to the dual mandate as broadly balanced, could signal a stronger hawkish stance. The bank removed its expectation for a September rate cut, now forecasting the Fed will maintain a neutral policy rate for an extended period. Powell's overall tone is expected to align with a prolonged pause. The monthly cap for reducing the Treasury portfolio has been lowered from $60 billion to $30 billion. Surveys indicate most economists expect quantitative tightening to end around October 2026, and this meeting may provide more clarity on the conclusion of the balance sheet runoff.
**Leadership Transition** Following the Justice Department's dismissal of the investigation into Chair Powell on the 24th, a potential obstacle to Kevin Wash's nomination was removed. The Senate Banking Committee is expected to advance Wash's nomination to the full Senate on Wednesday. He could be confirmed before Powell's term ends on May 15th, potentially presiding over the Fed's June policy meeting. This year, former President Trump has publicly criticized Powell and the Fed's decision to maintain the current benchmark rate, arguing high rates hinder business and consumer borrowing, putting the U.S. at an economic disadvantage compared to low-rate countries. Facing potential pressure, Wash suggested at his Senate hearing that balance sheet reduction and rate cuts could proceed simultaneously. He explained a gradual runoff pace could create policy space for cuts and explicitly stated he would not be a policy puppet for the Trump administration, refusing to commit to specific rate decisions as demanded by the President. For this meeting, beyond the policy statement, whether Powell remains on the Board of Governors is another key point, with the current Chair likely questioned about his plans during the press conference. Powell had previously stated that the conclusion of the investigation was a necessary condition for him to consider leaving the Board. While it is traditional for a Chair to resign from the Board after their term, he might choose to stay, deciding based on what best serves the institution and the public. This stance is closely related to concerns about Trump attempting to influence Fed independence. Powell could remain a Governor until January 2028, the final full year of a potential Trump presidency, meaning the President would still lack control over the majority of the Board. Reflecting on Powell's eight-year tenure, he enhanced Fed communication transparency, institutionalized post-meeting press conferences, strengthened policy dialogue with capital markets and global economies, and reduced market irrational volatility. He led two major public reviews and revisions of the Fed's core guiding document, the "Statement on Longer-Run Goals and Monetary Policy Strategy," in 2020 and 2025, introducing average inflation targeting and shortfalls-based employment analysis to address the effective lower bound. Regarding policy decisions, the Fed corrected its earlier "transitory inflation" misjudgment, pivoting to a tightening path, thereby restoring its ability to guide price and employment expectations and stabilizing long-term market inflation views. He improved bank supervision and liquidity tools, optimized crisis response mechanisms, and effectively deployed liquidity during the 2023 regional banking turmoil to prevent systemic risk contagion. Wash's potential leadership could bring significant changes. During his Senate testimony, he hinted he might not commit to holding a press conference after every policy meeting, suggesting current communication is sufficient. He is also considering abandoning the Fed's long-standing reliance on forward guidance, believing it may limit policy flexibility more than stabilize markets. Regarding potential impacts of policy shifts, many Wall Street participants anticipate that a combination of simultaneous balance sheet reduction and eventual rate cuts could push the Treasury yield curve higher, potentially benefiting high-growth sectors like technology.
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