The Federal Reserve maintained interest rates unchanged at its April meeting, aligning with market expectations. However, four officials dissented from the decision, with three opposing the inclusion of language suggesting an easing bias, indicating a more cautious monetary policy stance. Elevated oil prices stemming from US-Iran tensions, combined with lingering effects from earlier tariffs, have complicated the inflation landscape. Supply shocks are transitioning from sporadic events to a new normal, compressing the scope for policy easing and raising the threshold for interest rate cuts. This meeting also marked Chair Powell's final FOMC meeting as Fed Chair. Although his designated successor, Waller, has signaled a potential combination of balance sheet reduction and rate cuts, the collective decision-making mechanism of the Committee may hinder any push for near-term rate cuts. CICC assesses that the likelihood of a Fed rate hike this year is low, but the path to rate cuts will be more protracted, with the next potential cut possibly delayed until the fourth quarter.
The most significant change in this meeting was the four dissenting votes. Cleveland Fed President Mester, Minneapolis Fed President Kashkari, and Dallas Fed President Logan opposed including "easing bias" wording in the policy statement, while Governor Bowman voted in favor of a 25-basis-point rate cut. This reveals heightened divergence within the Fed regarding monetary policy, with some officials adopting a more prudent stance amid persistently sluggish progress of inflation towards the 2% target.
This shift in attitude occurs against the backdrop of contracted global oil supply due to US-Iran conflicts, driving sustained oil price increases and posing new upside risks to US inflation. Typically, the Fed views oil price spikes caused by geopolitical events as "transitory shocks" and opts to "look through" them in policy decisions. However, the current situation appears different—peace talks show no substantial progress, the Strait of Hormuz remains largely closed, and high oil prices are evolving from a short-term disruption into a persistent pressure. Concurrently, inflationary effects from prior tariffs have not fully dissipated. The叠加 of multiple factors complicates the inflation environment, compelling the Fed to exercise greater caution.
Notably, the current oil price surge is not an isolated incident but reflects a pattern of frequent supply shocks in recent years. Over the past five years, sequential events include: the 2020 COVID-19 pandemic disrupting global supply chains, the 2022 Russia-Ukraine conflict driving a significant oil price surge, 2025 tariff policies disturbing goods trade, and this year's US-Iran tensions again transmitting inflation pressures via oil prices—supply shocks are evolving from occasional occurrences into a new normal. Monetary policy primarily manages demand and lacks effective tools to address supply shocks. The normalization of supply shocks implies constrained policy space for the Fed, a higher bar for rate cuts, and increased resistance to monetary easing.
Another focal point of the meeting was that it was Chair Powell's final FOMC meeting as Chair. Meanwhile, successor Waller has passed a vote in the Senate Banking Committee, moving closer to formal appointment as the next Chair. A market concern is whether Waller can advocate for earlier and faster rate cuts upon taking office. While Waller indicated a policy signal of "balance sheet reduction + rate cuts" during last week's Senate hearing—prioritizing interest rate tools while gradually shrinking the balance sheet and committing to credible rate cuts—it is assessed that promoting rate cuts in the short term remains challenging given current conditions. Fed policy is determined collectively by the Committee, not individually. Dissenting votes from several regional Fed presidents today suggest that without substantial improvement in the inflation outlook, they are unlikely to endorse rate cuts. Waller's personal policy inclination alone may struggle to sway the Committee's voting dynamics.
Furthermore, Powell stated at the press conference that he will continue serving as a Governor for a period after stepping down as Chair, citing ongoing Justice Department investigations and the need to preserve Fed independence. This implies that during the initial phase of Waller's tenure, the distribution of opinions within the Fed will be in a delicate transition, likely maintaining the current policy基调 for some time.
The assessment remains that a Fed rate hike this year is unlikely, but the threshold for cuts is elevated. Sustained high international oil prices will gradually transmit effects to gasoline, airfares, and broader goods prices over time. This could push US inflation higher in Q2 and potentially keep overall inflation elevated in the second half of the year. Consequently, the next rate cut is anticipated to be delayed until Q4. Should the labor market deteriorate beyond expectations, the timing for cuts could be brought forward accordingly.
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