The Federal Reserve is likely to remain in a wait-and-see mode at the end of its two-day meeting on April 29 and leave interest rates alone as inflation risks rising due to the Iran war and concerns about the job market remain.
Instead of the rates decision, the focus may be on Jerome Powell’s news conference, which could be his last as chairman. Fed watchers will be looking for clues in their language about whether officials view inflation or job market weakness as bigger threats.
Concerns about a slowing labor market and a tight rental environment prompted the Federal Open Market Committee to cut rates three times late last year. Those concerns have not gone away but were somewhat mitigated by the Labor Department’s estimate that U.S. employers added 178,000 jobs in March. Meanwhile, the consumer price index rose to 3.3% in March from 2.4% in February.
With new tariffs from the Trump administration, higher oil prices, and supply chain disruptions associated with the war, prices are likely to remain high for the near future. The key question is whether inflationary shocks will be temporary or persistent, the difference depending on how long the war lasts.
Forecasters overwhelmingly expect the committee to keep its interest rates steady at a range of 3.5% to 3.75%.
No ‘clear’ path to rates
Powell downplayed concerns about stagflation in his press conference after the final rates decision. Still, Federal Reserve Bank of Chicago President Austin Goolsby said it’s a scenario that keeps him up at night.
“High oil prices before the tariff inflation goes away were likely to lead to stagflation, causing the main engine of growth – the American consumer – to give up and say no, trust us, start hoarding our money, and send us into a stagflationary recession – that would be the worst outcome,” Goolsby said at the Detroit Economic Club on April 7.
At the same time, Goolsby said, Americans’ incomes and the unemployment rate (4.3%) remain “strong.” He agreed with Powell that there is no “clear” path forward for rates.
As of March 18, committee members’ average expectation for the federal funds rate at the end of 2026 was 3.4%, implying a quarter-point rate cut, but that could come in the second half of this year.
“The ongoing uncertainty related to the Strait of Hormuz strengthens the case for the Fed certainly remaining on the sidelines leading up to the upcoming meeting and for several months thereafter,” said Sue Hill, head of the government liquidity group at Federated Hermes.
Treasury Secretary Scott Besant and Cleveland Federal Reserve President Beth Hammack – a voting member of the committee – have both suggested the Fed halved in April.
Pending Powell-to-Wash transition
Under normal circumstances, the press conference would have been Powell’s last since the April decision; His term as chairman is set to end on May 15 and the Federal Open Market Committee will not meet again until mid-June. But Powell has said he will remain in the post temporarily if his successor is not confirmed by the end of his term.
President Donald Trump has nominated finance executive and former Fed governor Kevin Wersh for the post, but his confirmation was blocked by Sen. Thom Tillis, R-North Carolina, who wanted the Justice Department’s investigation into Powell to end first. On April 24, the US attorney for the District of Columbia announced that the department had closed the investigation.
This decision will likely clear the way for Warsh’s confirmation: Tillis confirmed in a social media post on April 26 that he looks forward to supporting her.
Trump has threatened to fire Powell if he does not step down by mid-May, but Powell has said that “the law requires” Warsh to remain in the role if he is not confirmed in time.
Isaac Wheeler, managing director of balance sheet strategy at Derivatives Path, said that although for Main Street consumers there will be more attention to the potential “showdown” between Trump and Powell, Warsh and Powell are not so different anyway.
“At the end of the day, this selection is probably one of the most conservative things the administration has done,” Wheeler said. “No one should expect the Fed to make dramatic changes overnight, or to change rates dramatically because it has been appointed.”
What does the rate decision mean for consumers
Normally, the Fed lowers its benchmark interest rate to stimulate the economy and raises it to curb inflation. When it feels monetary policy is in good shape, or when there is a threat to both sides of its dual mandate, it keeps rates stable.
Low interest rates make borrowing cheaper and can indirectly affect lending rates for auto loans, personal loans and credit cards. They also encourage businesses to invest and grow, which can lead to more hiring. Higher rates slow spending to keep inflation under control, which could theoretically help consumers by stabilizing prices.
However, inflation and the labor market are not all under the Fed’s control. New tariffs and oil price shocks could keep prices high. The supply of workers has been limited due to a crackdown on illegal immigration, the adoption of artificial intelligence by companies and a general feeling of uncertainty that has led many employers to halt mass hiring.
The Fed Committee is expected to release its rate decision on April 29 at 2 pm ET, and Powell’s news conference will take place at 2:30 pm ET.