The Federal Reserve is set to hold its monetary policy meeting this week, which will mark the final policy meeting chaired by Jerome Powell. Market expectations widely point to the Fed maintaining interest rates unchanged, with policy signals likely to remain subdued. In contrast, political turmoil surrounding the leadership transition at the Fed has drawn greater market attention.
Last week, the U.S. Department of Justice dropped a controversial criminal investigation into the Federal Reserve, removing an obstacle for Kevin Warsh, who was nominated by former President Trump to succeed Powell as Fed Chair. Senator Thom Tillis, who had previously blocked a confirmation vote, stated on Sunday that he would support Warsh’s appointment after the Justice Department assured that the investigation had been "completely closed." The Senate Banking Committee, where Tillis serves, is scheduled to vote on Warsh’s nomination on April 29. A Fed spokesperson declined to comment.
This week’s Fed meeting is expected to be uneventful, likely serving as Powell’s final policy meeting as Chair. Market participants do not anticipate many surprises. Concerns that conflict in Iran could drive inflation higher, combined with steady labor market performance, are expected to lead Fed policymakers to keep the benchmark interest rate within the 3.5%–3.75% range for the third consecutive meeting. Fed officials are also unlikely to provide clear signals about future policy direction.
Robert Titera, a former senior Fed advisor, noted that like all market participants, policymakers find it difficult to predict how energy-related shocks will ultimately unfold. "They will try to remain as vague as possible. Everyone will shrug and say, 'We can’t predict the situation, but we are prepared to respond.' That will likely be the tone of the meeting," Titera said.
During the last policy meeting on March 17–18, inflation concerns were mounting. Some officials even suggested signaling the possibility of a future rate hike, but the proposal lacked sufficient support and was not included in the post-meeting statement. Subsequent data showed that U.S. consumer prices in March recorded the largest monthly increase in nearly four years, driven by a surge in gasoline and diesel prices. At the same time, labor market and consumer spending data remained strong. Retail sales hit a one-year high, employment rebounded, and the unemployment rate unexpectedly declined.
Diane Swonk, chief economist at KPMG, believes these figures suggest the Fed will prefer to retain policy flexibility. "The Fed needs to signal that 'all policy options remain on the table.' With demand resilience, rising uncertainty, and frequent severe supply shocks, the next move in interest rates could be either up or down," Swonk said.
In recent weeks, U.S. Treasury yields have fluctuated within a narrow range, with market expectations for Fed rate cuts this year swinging between 30% and 60%. This pattern may persist until the direction of oil prices becomes clearer. "Inflation data will remain elevated, and the longer high inflation persists, the more it will drag on economic growth," said Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities.
Political developments have overshadowed monetary policy decisions, potentially allowing Powell to conclude his term quietly. Last Friday, the Justice Department announced it was dropping an investigation into the renovation of the Fed’s headquarters—a probe that had complicated the leadership transition. Powell’s term as Chair ends on May 15. Warsh, who appeared before the Senate Banking Committee last week, has received broad support from Republican lawmakers. However, until Tillis withdrew his opposition following the closure of the investigation, it remained uncertain whether Warsh would be confirmed before Powell’s term expires.
Powell has committed to remaining on the Fed’s Board of Governors until the investigation is resolved in a "transparent and thorough" manner. His term as a governor lasts until 2028. Since receiving a subpoena from the Justice Department in January, Powell has maintained that the investigation was politically motivated, stemming from Trump’s dissatisfaction with the Fed’s interest rate decisions. Powell’s intention to stay on as a governor is not expected to change.
In closing the investigation, U.S. Attorney Jenny Piro for the District of Columbia stated that she would await the results of the Fed Inspector General’s review of the renovation project. She also made clear that she would reopen the criminal investigation "if the facts warrant it."
David Seif, chief economist for developed markets at Nomura Securities, suggested that Powell will likely avoid introducing any new information during his press conference on Wednesday that could confuse markets, at least regarding policy. "There won’t be any clear policy signals. This is a typical 'lame duck' meeting," Seif said.
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