Fed likely to Hold Rates Steady as Powell prepares for Possible Swan Song

• Federal Reserve (Fed) policymakers will gather in Washington this week in what may be Jerome Powell's last meeting as head of the United States (U.S.) Central Bank, with energy prices still elevated and the Iran war at a standstill, is likely to prolong uncertainty about the economic and monetary policy outlook.
• A May 15 endpoint for Powell's eight years at the Fed's helm now appears more likely after a major obstacle to the U.S. Senate's confirmation of his appointed successor, Kevin Warsh, was removed on Friday, April 24, 2026. As a final act, Powell ‌will likely oversee on Wednesday (April 29th) another vote by the central bank's policy-setting Federal Open Market Committee (FOMC) to hold its benchmark overnight interest rate steady in the 3.50%-3.75% range, where it has been since December. Still, the meeting and Powell's press conference afterwards could settle key matters, including whether policymakers will nod to the potential for rate hikes later this year if inflation accelerates.
• When the war started on February 28, central bankers said the impact on inflation and economic growth would hinge on how quickly it ended and whether oil prices reversed to pre-war levels of around $70 a barrel. Eight weeks later, the bombing has paused, but economic warfare is still underway. The U.S. is blocking Iranian ships from leaving the Strait of Hormuz, Iran is preventing other vessels from passing through the vital waterway, and the disruption to global oil and other supply chains at a point where policymakers are taking inflation risks more seriously.
• Brent crude futures, the global oil benchmark, have risen about 50% since the start of the war. The resulting surge in gasoline and energy prices last month helped propel the U.S. Consumer Price Index to its biggest increase in nearly four years. While expected to hold interest rates steady, U.S. central bankers will have to decide if it's time to nod to the possibility of hiking borrowing costs if ‌inflation continues to ⁠ The prospect of rate cuts, at least, has dwindled, with bond markets positioned for the Fed's policy rate to remain where it is through at least the middle of 2027.
• That said, the question of whether Powell will remain on the Fed's Board of Governors even if Warsh is confirmed in time to run the next policy meeting in June also could be addressed. The U.S. Department of Justice on Friday dropped a controversial criminal probe of Powell over renovations of the Fed's headquarters in Washington, potentially satisfying the demands of a key Republican senator who threatened to delay Warsh's confirmation because of it. Powell also had made an end of the probe a necessary condition of leaving the Fed's board.
• Although Fed chiefs traditionally have resigned their board seats when their leadership terms have expired, Powell said last month he might stay and would "make that ⁠decision based on what I think is best for the institution and for the people we serve," a broader test connected with President Donald Trump's efforts to encroach on the Fed's independence.

(Source: Reuters)