Federal Reserve's April Meeting Starts Today: What You Need to Know
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KEY TAKEAWAYS
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The Federal Reserve is expected to keep interest rates steady amid economic uncertainty and inflation risks.
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Analysts are watching for signals on whether the Fed may shift its stance on future rate cuts or hikes.
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Fed Chair Jerome Powell’s upcoming leadership transition adds uncertainty to the central bank’s future direction.
The Federal Reserve has an easy decision when it meets this week—do nothing—but anything beyond this week’s meeting is up for debate.
The central bank is grappling with the still-unclear effects of the Iran war, whose energy price shock threatens to rekindle inflation. Just as hazy is whether the economy will falter if consumers start spending less, or whether growth will stay on track.
The uncertainty comes at a time of transition for the central bank. Fed Chair Jerome Powell, who’s led the Fed since 2018, is set to hand over the reins to former Fed Governor Kevin Warsh soon.
With little clarity on what’s ahead and the U.S. economy still solid, the Fed can be patient and keep rates steady, analysts say.
“The real economy continues to expand, stocks remain near record levels, and sticky pockets of inflation persist,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “It’s the ideal backdrop for the FOMC to keep policy rates unchanged until there is greater clarity.”
Why This Matters
Uncertainty around inflation and global conflict could delay rate cuts, affecting borrowing costs and investment decisions for consumers and markets.
Markets anticipate the Fed will keep the federal funds rate at its target range of 3.5% to 3.75% for months. US-Iran peace talks stalled over the weekend, sending oil prices sharply higher Monday as some saw rising risks of prolonged energy disruptions.
Watching for Clues
Markets will look to Powell’s 2:30 p.m. ET press conference on Wednesday for hints on how the Fed may react to the risks ahead.
In recent days, Fed officials have expressed concern about inflation, noting that it never fully returned to the Fed’s 2% target after prices spiked in 2021 and 2022. Analysts viewed their inflation concerns as slightly hawkish, potentially making some Fed officials more hesitant about the rate cuts they’d penciled in for 2026 before the war began.
It’s a tone that Powell may adopt in his press conference.
“We expect Chair Powell to sound somewhat hawkish,” wrote Marc Giannoni, Barclays’ chief U.S. economist. “We expect him to signal that the FOMC is in a holding pattern, which leaves it well positioned to address risks on both sides of the Fed’s dual mandate.”
Traders see a 77% chance the Fed will stay on hold all year, according to the CME Group’s FedWatch tool, which uses futures markets pricing to determine Fed probabilities. The tool shows a 23% probability of at least one rate cut, suggesting some optimism that the Fed can resume the cutting cycle of 2024 and 2025.
But the risk of delayed Fed cuts is rising, analysts say.
“Our baseline still assumes the Fed cuts rates twice this year, but it’s becoming more likely those cuts are shifted into the future,” wrote Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Markets see a rate hike as extremely unlikely, but some analysts caution that the risk persists the longer the war drags on.
“We see a growing tail risk that policymakers could consider hiking as soon as June if the Strait of Hormuz stays closed and U.S. labor data remains resilient,” James Egelhof, chief U.S. economist at BNP Paribas.
Two-Sided Risks?
Analysts will also look for clues in the Federal Open Market Committee’s decision, which will come out at 2 p.m. ET.
One question is whether the FOMC will offer guidance that its next move may be either a cut or a hike—a big shift from its current bias of lowering rates again.
Right now, the FOMC statement says it would consider “additional adjustments” to interest rates, an indication to markets that follow-up cuts remain more likely. But analysts see a possibility that the FOMC statement will drop the word “additional,” suggesting that rates can go in either direction.
That wouldn’t be a signal that rate hikes are likely—far from it. Instead, the change would signal the FOMC “has a more balanced view about its next rate move,” Giannoni said, sending a subtle but significant message that cuts are no longer the baseline.
Analysts also note the Fed may hold off on sending any clear messages for now.
“Officials might not want to make a revision to the statement that needs to be reversed in relatively short order,” wrote Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “As such, we see June as better placed for such a change, when officials should have more clarity.”
Powell’s Last Dance
Reporters will also be sure to ask Powell about the upcoming leadership transition, given Powell’s term as Fed chair ends in mid-May.
Warsh’s nomination now appears to be on track, after the Department of Justice dropped a criminal investigation over the cost overruns in Fed’s headquarters renovations. The investigation had drawn concern from a key Republican on the Senate Banking Committee, who argued it was politically motivated given President Donald Trump’s criticisms of the Fed.
But with the investigation now dropped, the committee has scheduled a vote on Warsh’s nomination for Wednesday. A vote from the full Senate will follow in the coming weeks.
“The votes will be close, but Warsh will almost surely be confirmed,” wrote Ian Katz, a policy analyst at Capital Alpha Partners.
For Powell, a major question is whether he’ll stay at the Fed past mid-May, since his term as a Fed board member doesn’t expire until 2028. Powell hasn’t shared his plans after mid-May, though he’s said he has “no intention of leaving the Board until the investigation is well and truly over.”
If he stays on the Fed’s board, that would give Trump one less opening for a Fed appointment.
The DOJ investigation “can recommence just as quickly as it has stopped,” wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, a factor that could weigh on Powell.
“Absent a definitive end to the saga, Mr. Powell might conclude that it is his duty to remain on the FOMC until his term as Governor expires in January 2028,” Tombs said.
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