The Federal Reserve is anticipated to maintain current interest rates during Wednesday’s meeting, as central bank officials consider whether to address growing inflation concerns in their policy statement following what could be Jerome Powell’s final session as chairman.
Policymakers entering the Fed’s two-day gathering expressed mounting worries that elevated energy costs from the ongoing U.S.-Iran conflict could shift from a temporary disruption to sustained inflationary pressure. This scenario might require interest rates to remain unchanged longer than anticipated, or potentially increase in extreme circumstances.
Ongoing diplomatic deadlock and the persistent blockade of the crucial Strait of Hormuz have driven global oil prices back over $110 per barrel, up from approximately $70 before the U.S.-Israeli military operations against Iran began February 28. The Federal Reserve’s favored inflation gauge currently sits roughly one percentage point above the bank’s 2% goal, with March data expected to show further increases when released this week.
Market analysts see minimal probability of rate cuts before mid-next year, essentially betting against incoming Fed chairman Kevin Warsh’s potential to persuade colleagues that improved U.S. productivity will reduce inflation and permit more accommodative monetary policy.
“The developments since the March meeting — improved employment figures but persistently elevated inflation data — may push the conversation somewhat more hawkish,” though not enough for the Fed to suggest possible rate increases in its statement, explained Michael Feroli, JPMorgan’s chief U.S. economist. Unexpectedly robust job creation in March drove unemployment down to 4.3%.
The central bank will announce its interest rate decision and release its updated policy statement at 2 p.m. Eastern time. Powell plans to conduct a media briefing thirty minutes afterward.
Beyond discussing meeting outcomes and addressing economic forecasts, Powell may elaborate on his future plans as Warsh awaits Senate confirmation as Fed chief before the June 16-17 meeting.
Warsh’s nomination gained momentum last week following the Justice Department’s decision to end a criminal probe into a Fed construction project that key Republican senators viewed as an unfounded assault on Powell and the central bank’s autonomy. The Senate Banking Committee is set to vote Wednesday on recommending Warsh’s confirmation by the Republican-majority Senate.
While Powell’s chairmanship concludes May 15, his separate appointment to the central bank’s Washington-based Board of Governors continues through January 2028.
During March’s media conference, Powell stated he wouldn’t depart the board “until the investigation is well and truly over,” while leaving uncertain whether he might remain as a governor following the probe’s conclusion.
“I have not made that decision yet. And I will make that decision based on what I think is best for the institution and for the people we serve,” Powell said previously.
