The US Federal Reserve is likely to leave its benchmark interest rate unchanged at the FOMC meeting on April 28 and 29. On Wednesday, the Fed chair will announce the monetary policy decision, followed by a press conference.
According to CME Group’s FedWatch, the US Fed is likely to keep rates unchanged at 3.50%-3.75 % on April 29.
“Market participants will be keeping an eye on the Fed’s views at the upcoming FOMC meeting. Investors have gravitated towards a more moderate outlook for Fed policy, factoring in less than a cut by the end of 2027. We think this is reasonable as recent US data seem to be skewing closer to overheating (decent labour market data and inflation prints higher than 3% YoY) than stagflation (which would result in a policy conflict),” says Eugene Leow, Senior Rates Strategist – G3 & Asia at DBS Bank.
“Against this backdrop, there is no room for aggressive easing. It is also premature to consider tightening (the market panicked in late March), with many central banks opting for a wait-and-see approach for now. in the fog of war, data becomes the only reasonable guide,” adds Leow.
The April FOMC meeting could be Powell’s last as Fed chair. In May, Powell will resign as chairman of the FOMC, before the next meeting, which is scheduled for June 16-17.
It is unclear whether Powell will remain on the Board of Governors, as he had earlier said he would stay on the board until a Justice Department investigation of him ended, and it was dropped last week.
Despite the pressure from the White house and President trump, Powell and other FOMC members held on to their rate cut decisions. Estimates of the economic consequences of the Iran conflict may be holding back the Fed from cutting interest rates in a hurry.
Powell’s Last Press Conference
The Powell’s last press conference will be an interesting watch before a new regime takes over at the central bank. Powell will resign in favor of Kevin Warsh, Trump’s nominee, who is undergoing Senate confirmation.
Fed has a dual mandate of keeping inflation low and employment at higher levels. However, the Iran war has put the central bank in a challenging position. The rising gasoline prices are contributing to inflation and creating uncertainty among business leaders, potentially resulting in a slowdown in hiring.
It is a Catch-22 situation for the Fed: higher rates may combat inflation, while lower rates could boost spending and employment during a potential downturn. Powell is expected to discuss the impact of the Iran war in his upcoming press conference.
Senator Thom Tillis announced he will no longer block Kevin Warsh’s nomination to lead the Federal Reserve. The committee, which includes Tillis, has planned a vote on the nomination for April 29. “watch for Fed Chair Powell’s cues on whether he would continue to stay as governor when Warsh gets nominated as Fed Chair,” says Leow.
If Warsh is confirmed, he may initiate reforms at the Fed, including new tools, a revised inflation framework, and a communication style that is less reliant on forward guidance, as indicated in his April 21 confirmation hearing.
Oil and Inflation
Brent crude futures rose to approximately $110 per barrel, nearing the highs of March due to ongoing tensions in the US–Iran conflict. The blockade of the Strait of Hormuz continues.
US President Trump’s displeasure with Iran’s proposal worsens the situation, as Iran conditions a ceasefire on the lifting of the naval blockade and the provision of security assurances.
The ongoing Iran war, now in its ninth week, has increased energy prices and disrupted supply chains, leading the International Energy Agency to warn of a potential supply shock amidst a possible demand slowdown, as flows through Hormuz, critical for 20% of global energy, remain largely halted.
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