Fed meeting today: Central bank 'firmly parked' on interest rate pause

The Federal Reserve is widely expected to hold its benchmark interest rate steady on Wednesday afternoon amid uncertainty over when the conflict in the Middle East will be resolved.

Fed Chair Jerome Powell will hold what is expected to be his last press conference, given that the Senate banking committee is scheduled to vote Wednesday morning to confirm Kevin Warsh as the next chair, likely putting him in place by May 15, when Powell’s leadership term expires.

Powell’s final policy meeting after eight years at the helm is expected to be somewhat unremarkable.

“With uncertainty still pervasive, we expect [Chair Powell] will emphasize that officials are unsure of the precise fallout from the war on the economy and monetary policy,” said Matt Luzzetti, chief US economist for Deutsche Bank. “However, Powell could highlight that persistent price pressures become more likely the longer oil prices remain elevated.”

Investors will be looking to see how Powell frames the impact of the conflict on inflation and growth, and whether he cautions that sustained high oil prices could hurt growth and employment as well as inflation.

Read more: How jobs, inflation, and the Fed are all related

“If inflation stays high, then people will back away and demand will fall,” former Kansas City Fed president Esther George said. “The problem I see with that argument right now is there are just a number of tailwinds for the consumer.”

For one, she said, higher-income consumers are more indifferent to inflation, capital investment is increasing, and government spending is increasing due to the war.

Also of interest is whether the Fed can continue to look through the oil price spike as a short-lived, one-time hit to inflation, given that it comes after tariffs and inflation remaining above the central bank’s 2% target for five years.

Fed governor Chris Waller has noted that policymakers may eventually have to acknowledge that a series of one-time shocks becomes persistent.

Read more: How oil price shocks ripple through your wallet, from gas to groceries

Even before the war broke out, former Cleveland Fed president Loretta Mester said inflation looked sticky. She noted that while goods prices have leveled off from the effect of tariffs, it’s unclear that services inflation (excluding housing) is on a downward path.

“The most recent readings, even before the war, were sticky, not moving down and perhaps even firming a bit,” Mester said. “So, I think they have to be very focused on inflation, and I think the risks are to the upside.”

Fed on indefinite hold?

The first major reading on inflation after the Iran war began showed that the jump in energy prices pulled up overall inflation but didn’t affect core inflation. The Consumer Price Index showed inflation jumped 3.3% in March, led by a 21% spike in gas prices. On a “core” basis, which excludes volatile energy and food prices and is the best long-run predictor of overall inflation, CPI inched up 2.6% in March, after rising 2.5% in February. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, will be released on Thursday.

Read more: March CPI breakdown: Iran war sends gas prices skyrocketing, airfare climbing

Deutsche Bank’s Luzzetti changed his forecast for one rate cut this year and now sees the Fed on an indefinite hold. He said that for the Fed to cut rates this year, it would require a weakening in the job market along with softer inflation.

“A rate hike this year is no longer a trivial possibility, but we do not expect such conditions to manifest in 2026,” Luzzetti said.

For the Fed to raise interest rates, he said there would need to be enough economic strength to cause inflationary pressure, and inflation would need to accelerate above 3%.

In January, Powell said rate hikes weren’t the base case for anyone on the FOMC. In March, this was still the case, but then for “the vast majority” of the committee.

Krishna Guha, head of economics and central banking strategy for Evercore ISI, said Wednesday’s meeting will confirm that any consideration of rate cuts is “firmly parked” as the Fed focuses on inflation from tariffs and the surge in oil prices.

“Fed officials feel policy is very well-positioned,” he said. “But for the dominant group, the question is cut or hold this year, not cut or hike.”

The Fed’s policy decision will be released at 2 p.m. ET, followed by Powell’s press conference at 2:30 p.m. No new interest rate projections or updated economic forecast will be released on Wednesday.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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