From April 28th to 29th, the Federal Reserve is holding a highly anticipated monetary policy meeting that has garnered significant attention from global financial markets. According to multiple expert analyses, the most likely outcome of this meeting is to maintain the federal funds rate unchanged. Despite recent upward pressure on energy prices, voting members of the Federal Reserve generally believe that current data is insufficient to confirm that rising energy prices have translated into core inflation. Therefore, monetary policy will likely maintain a "wait-and-see" stance. However, this meeting is unique in that it may also be the last press conference of Jerome Powell as Chairman of the Federal Reserve—if his successor, Kevin Warsh, is confirmed soon. This article will analyze the core content of this meeting in detail from four dimensions: policy continuity, internal disagreements, the potential impact of the energy shock, and key points of the power transition.

Policy stance: Continue the "wait and see" strategy, downplaying the possibility of short-term adjustments.

Several economists pointed out that the core message conveyed by the Federal Reserve this time will be that monetary policy is currently in an appropriate position and has ample room to wait for further clarity on the prospects for economic growth and inflation.

Erik Weisman, chief economist at MFS Investment Management, and Kish Pathak, a fixed-income analyst, jointly stated that as early as the March 18 meeting, Powell attributed the uncertainty in economic forecasts to geopolitical conflicts. While the risk of war related to Iran has decreased since then, overall uncertainty remains extremely high.

Therefore, Powell is likely to reiterate that the economic outlook depends on the evolution of the conflict. Market participants will pay close attention to any changes in the wording regarding growth and inflation expectations in the statement—any subtle shift in tone could trigger volatility.

Undercurrents: Minority Views on Interest Rate Hikes Emerge

While the prevailing expectation was to keep interest rates unchanged, the minutes of the March meeting revealed a significant trend: a minority voice within the Federal Reserve was emerging that suggested raising interest rates might be necessary to fulfill the Fed's price stability mandate if its inflation target was threatened.

Mabrouk Chetouane, chief market strategist at Natixis IM Solutions, believes the meeting will focus on two key areas: first, anchoring investor expectations for interest rates and inflation to avoid unexpected tightening of financial conditions; and second, maintaining policy flexibility to address various scenarios . For Powell, he will likely be pressed at the press conference about specific developments that would prompt the FOMC to shift towards raising interest rates. Based on his past communication style, Powell will most likely respond that "it is too early to judge " and emphasize that current policies can balance the risks on both sides of the dual mandate.

The dual effects of the energy crisis: shrinking demand may force future interest rate cuts.

This energy price surge is not simply a threat of inflation; it may also suppress aggregate demand.

Chetouane points out that the current energy crisis is more likely to lead to a significant drop in aggregate demand than to a sustained increase in core inflation. Therefore, the Federal Reserve's response function will continue to prioritize economic activity and the performance of the labor market. Based on this logic, he maintains his original assessment that the Fed is likely to cut the benchmark interest rate by 25 to 50 basis points by the end of 2026.
It should be emphasized that this move was not to cater to the political desires of the White House, but rather out of an objective need to support the needs of the real economy.

Marco Giordano, investment director at Wellington Management, added that central bank decisions will be a decisive variable in the global economic cycle in the coming quarters. Throughout March, most central banks chose to hold rates steady due to rising geopolitical risks and uncertainty surrounding energy-driven inflation, a trend expected to continue at their April meetings.

The moment of power transition: Powell's farewell and Walsh's arrival

This April meeting is particularly noteworthy because if Kevin Warsh's nomination is quickly confirmed by Congress, it will be Powell's last press conference as Federal Reserve Chairman. Reporters will likely repeatedly ask two questions: First, will Powell remain a member of the Federal Reserve Board of Governors after his term as chairman ends? Second, will he change his mind if the Justice Department's investigation into the relevant events concludes? Based on past statements, Powell's most likely answer is "no final decision has been made."

So, what will the Federal Reserve look like under Warsh's leadership? Eiko Sievert, head of public and sovereign sector ratings at Scope Ratings, offers a more specific prediction. He believes that Warsh, based on the judgment that "AI-driven growth will not trigger inflation," is likely to favor interest rate cuts. At the same time, Warsh's appointment will mean a significant reduction in regulatory intensity, with the policy focus shifting towards deregulating the financial sector, while attention to the Fed's dual mandate (price stability and maximum employment) may decline. Issues such as climate risk and social equity are expected to receive significantly less attention. Regarding the balance sheet, reduction will become a priority, but the implementation will remain gradual to avoid excessive market volatility. Furthermore, the Fed's public communication methods may also change, including reducing forward guidance to FOMC members on the future path of interest rates.

Sievert concluded by emphasizing that, against this backdrop, the June FOMC meeting will be closely scrutinized by the market—if the Fed were to cut rates prematurely without any data showing a decline in inflationary pressures, it could be interpreted as a dangerous signal that the Fed's independence is being undermined.

Summary: Profound Changes Beneath a Surface of Stability

In conclusion, this Federal Reserve meeting is likely to exhibit a pattern of "continuation" and "wait-and-see" in its interest rate decision. However, beneath the calm surface lie multiple shifts: emerging calls for interest rate hikes within the Fed, the double-edged sword effect of the energy crisis on demand, Powell's departure, and a potential policy shift under the Warsh era. Investors need to closely monitor the details of Powell's press conference, especially his latest assessments of inflation risks and geopolitical conflicts. Regardless of the outcome of the April meeting, the transfer of power and the evolution of the Fed's policy framework will be one of the most crucial narrative threads in global financial markets in the coming months.

Frequently Asked Questions

Question 1: Given the significant rise in energy prices, why is the Federal Reserve still insisting on not adjusting interest rates?

A: The core inflation indicator the Federal Reserve focuses on is the core PCE or CPI, which excludes food and energy. Current data shows that rising energy prices have not yet significantly translated into broader service and goods prices. In other words, policymakers believe this is more of a relative price shock than overall inflationary pressure. At the same time, raising interest rates could further suppress already fragile aggregate demand, so the Fed prefers to "wait and see" for clearer evidence of the transmission effect.

Question 2: A minority believes that interest rate hikes may be necessary. Does this mean the Federal Reserve is about to shift towards tightening?

A: This doesn't mean an immediate shift. The "minority view" in the meeting minutes only indicates the existence of differing opinions, but the vast majority of voting members have not yet been persuaded. Raising interest rates requires strict conditions, such as sustained increases in energy prices triggering a wage-price spiral, or inflation expectations becoming decoupled. Powell will likely emphasize at the press conference that "it's too early to judge" to downplay excessive market expectations for a rate hike.

Question 3: After Powell steps down as chairman, will he necessarily leave the Federal Reserve? Can he continue to serve as a governor?

A: Powell's term as a Federal Reserve governor is far from over (governors serve 14-year terms, which are not tied to the chairman's term). Therefore, legally, he could very well continue serving as a regular governor after stepping down as chairman. However, his personal will is the main variable. He previously stated that he "has not yet made a decision," leading to speculation that this may depend on the final outcome of the Justice Department's investigation and other political factors. If he remains in office, he will still have voting rights on the FOMC.

Question 4: If Kevin Warsh were to succeed Powell as chairman, what are the essential differences in his policy inclinations?

A: There are three main differences. First, Warsh believes that growth driven by technological advancements such as artificial intelligence will not trigger inflation, and therefore favors interest rate cuts. Second, he advocates for significant deregulation of the financial sector and less focus on non-traditional issues such as climate risk and social equity. Third, he may reduce the Fed's forward guidance, making the market less reliant on official forecasts. Overall, the Fed under Warsh's leadership will be more inclined towards "deregulation" and "growth first," rather than the balanced approach of the Powell era.

Question 5: Is the Federal Reserve's independence being challenged? How can we glean any clues from this meeting?

A: The primary threat to the Fed's independence stems from political interference in interest rate decisions. This article points out that if the Fed cuts rates at its June meeting without supporting data on declining inflation, it will be seen as a sign of weakened independence. Furthermore, if Warsh weakens his commitment to the dual mandate, it could alter the Fed's long-standing tradition of relying on rules rather than political preferences in its decision-making. The fact that the Fed kept rates unchanged at its April meeting actually reflects its independence—that is, not being held hostage by short-term fluctuations in energy prices. The real test will come in the second half of the year.