Fed Expected to Hold Rates Steady as Powell-Warsh Transition Looms

📰 Fed Expected to Hold Rates Steady as Powell-Warsh Transition Looms

The Federal Reserve is likely to maintain its wait-and-see approach and leave interest rates unchanged at the conclusion of its two-day meeting on April 29. With the Iran conflict driving up oil prices and inflation concerns, alongside lingering uncertainty about the labor market, the Federal Open Market Committee (FOMC) is widely expected to hold the federal funds rate steady in the 3.5% to 3.75% range.

Rather than the rate decision itself, attention may focus on Chair Jerome Powell’s press conference — potentially his last as Fed chair. Market participants will scrutinize his language for clues about whether officials view inflation or labor market weakness as the greater threat.

Concerns about a slowing labor market and a low-hire environment drove the Fed to cut rates three times late last year. Those concerns haven’t fully dissipated but were somewhat alleviated by the Labor Department’s estimate that U.S. employers added 178,000 jobs in March. Meanwhile, the Consumer Price Index — the department’s inflation measure — surged from 2.4% year-over-year in February to 3.3% in March.

New tariffs from the Trump administration, combined with higher oil prices and war-related supply chain disruptions, are expected to keep prices elevated in the near term. The critical question is whether these inflationary shocks will be temporary or persistent — a distinction that largely depends on the duration of the conflict.

“The ongoing uncertainty relating to the Strait of Hormuz reinforces the case for a Fed that remains on the sidelines — certainly for the upcoming meeting, and in all likelihood, for many months thereafter,” Sue Hill, head of government liquidity group at Federated Hermes, a global investment manager, told USA TODAY.

Treasury Secretary Scott Bessent and Cleveland Fed President Beth Hammack — a voting member on the committee — have both suggested the Fed should pause in April.

Chicago Fed President Austan Goolsbee said the possibility of a stagflation outbreak driven by high oil prices before tariff inflation subsides “keeps him up at night.” However, he noted that Americans’ incomes and the 4.3% unemployment rate remain “strong,” agreeing with Powell that there is no “obvious” path for rates.

As of March 18, committee members’ median expectation for the federal funds rate at the end of 2026 was 3.4%, implying one quarter-point rate cut, though it may not come until the second half of the year.

Source: USA Today - No Fed rate move expected as Powell-Warsh shift looms