Powell's Final Meeting? Fed Tested by Iran Energy Shock
The Fed will hold its policy meeting this week in Washington, potentially its final meeting as chairman before his term ends on May 15, amid persistently high energy prices and the Iran war evolving into an "economic war" stalemate. Markets widely expect the FOMC to hold interest rates on hold again on Wednesday in the 3.50%–3.75% range, but key attention will be on whether the Fed opens the door to rate hikes if inflation rebounds, as well as how Powell frames risks to growth and employment.
Political hurdles for the confirmation of Powell's successor, Kevin Warsh, are said to have eased after the Justice Department dropped a criminal investigation into the renovation of the Fed building—an issue some senators had previously used to stall the process. This also raises questions about whether Powell will remain as Fed chairman until 2028 if Warsh is confirmed soon, as Powell has stated that decisions will be made in the best interests of the institution—amid scrutiny of the central bank's independence from political pressure.
The macro context is further complicated by the ongoing energy shock. Brent is said to have risen by about 50% since the war began, pushing the US CPI to its largest monthly increase in nearly four years. With the Strait of Hormuz still locked by a two-way US-Iran blockade, energy inflation risks could potentially spread to core prices, while activity and employment could also slow—a “very complicated” policy dilemma, according to Fed Governor Christopher Waller. Therefore, the market will be monitoring whether the FOMC statement signals two-way policy risks (either up or down) and how hawkish Powell will be at his press conference, as the chances of a rate cut diminish. (Arl)
Source: Newsmaker.id
