The Federal Open Market Committee (FOMC) will announce its latest interest rate decision at 2:00 AM Beijing Time on Thursday, followed by a press conference chaired by Chairman Jerome Powell at 2:30 AM. This will likely be his 63rd, and final, policy communication event during his eight-year tenure leading the Fed. Markets widely anticipate the Fed will hold the benchmark overnight rate steady within the 3.50% to 3.75% range for the third consecutive time, a level unchanged since December of last year.
This decision to maintain the status quo is set against a backdrop of persistently elevated energy prices and the ongoing stalemate in the Iran conflict. The US-Iran conflict erupted on February 28th. At the time, officials assessed that the economic impact would depend on the conflict's duration and whether oil prices could retreat to pre-conflict levels around $70 per barrel. Eight weeks later, while active hostilities have ceased, the economic standoff persists: the US is blocking Iranian vessels attempting to exit the Strait of Hormuz, while Iran is impeding the passage of other ships through this critical waterway.
The global crude benchmark, Brent futures, has surged approximately 50% since the conflict began, directly driving up gasoline and energy costs. This contributed to the US Consumer Price Index recording its largest increase in nearly four years for March. Pricing in the bond market suggests the policy rate will remain at its current level until at least mid-2027, indicating a narrowing window for potential rate cuts.
Sticky inflation has sparked discussions about potential rate hikes, leaving the wording of the post-meeting statement uncertain. Faced with persistently high energy prices, some policymakers have begun laying the groundwork for potential future increases. Fed Governor Christopher Waller, in his last public comments before the pre-meeting quiet period last week, stated plainly, "The longer energy prices remain high, and the longer the Strait remains restricted, the greater the chance that high inflation seeps into various goods and services, various supply chain effects start to manifest, and real economic activity and employment begin to slow."
He admitted that the Fed might need to confront both a softening labor market and high inflation simultaneously, describing the situation as "very complex." These remarks also marked a noticeable cooling from his previous stance, which, driven by concerns over weakening employment, had called for rate cuts.
During policy discussions on March 17-18, several officials already mentioned the possibility of rate increases. St. Louis Fed President Alberto Musalem, in an interview with Reuters earlier this month, said current policy is "in a good place" and it might be appropriate to hold rates steady for some time. He also cautioned that prolonged high oil prices would not only boost headline inflation but also elevate core inflation, adding, "At that point, the risk of inflation expectations becoming unanchored would become non-negligible." Should that risk become more imminent, a rate hike would logically follow.
Even Governor Michelle Milan, a steadfast advocate for rate cuts, has recently considered slowing the pace of her suggested easing due to a "less optimistic" inflation outlook.
Currently, almost no one opposes holding rates steady. The real suspense lies in whether the post-meeting policy statement will adjust its forward guidance to hint that the next interest rate move might not solely be a cut. Economists at Bank of America judged in a report that the Fed "will firmly stand pat at the April meeting," as inflationary risks from the Iran conflict persist and labor data has shown some improvement. "The biggest question is whether the forward guidance language in the statement will hint that policy risks are two-sided. We think not, but the outcome will be suspenseful. Powell's tone may lean hawkish."
On the same day as the rate decision, the nomination process in the Senate will also advance. The US Department of Justice last Friday dropped its criminal investigation into Powell related to the Fed headquarters renovation project, meeting a condition previously set by key Republican Senator Thom Tillis. Tillis had threatened to block the nomination confirmation of Kevin Warsh citing this investigation. After receiving assurance last Sunday that the investigation was completely closed, he reversed his position. The Senate Banking Committee subsequently scheduled a vote to advance Warsh's nomination for April 29th, paving the way for a full Senate confirmation vote before May 11th. Just hours after that potential vote, the Fed will announce its April rate decision.
Powell's term as Fed Chair expires on May 15th. He had previously set the conclusion of the investigation as a precondition for his departure from the Board of Governors. Last month, however, he indicated he might remain, stating he would make the decision "based on what I believe is best for the institution and the people we serve." This aligns with his previous stance; since receiving a Justice Department subpoena in January, Powell has consistently maintained the investigation was political intimidation, rooted in former President Trump's dissatisfaction with his interest rate decisions during his tenure.
By tradition, a departing Chair typically resigns from the Board of Governors simultaneously. However, Powell's term as a Governor extends until January 2028, which coincides with the final year of a potential Trump presidency. Should Powell remain on the Board, it would present a significant test of the Fed's independence against potential White House pressure. Trump, who publicly nicknamed Powell "Mr. Too Late" for not cutting rates aggressively enough, has been critical.
If Warsh's nomination is confirmed, he would fill both the Chair and a Governor seat. Governor Michelle Milan, who was appointed on an interim basis, would subsequently depart. Milan has been an active proponent of rate cuts; this week she will participate in her sixth, and likely final, FOMC meeting, becoming the shortest-serving Governor since the 1950s.
A larger structural variable hinges on Powell's personal choice. If he resigns from the Board of Governors upon concluding his Chairmanship on May 15th (his Governor term lasts until January 31, 2028), it would give Trump an opportunity to appoint another Governor. This could potentially give Trump four appointees on the seven-seat Board—including Governors Waller and Bowman, and the incoming Warsh.
Such a configuration would provide institutional support for the White House to pursue more aggressive measures. One possibility widely discussed is the potential removal of Regional Fed Bank Presidents, which could shake the Fed's traditional governance structure. Powell's ultimate decision to stay or go will directly influence the pace and intensity with which Warsh, and potentially Trump, could reshape the Fed's operational framework.
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