April 28, 2026

The two-day Federal Open Market Committee (FOMC) policy meeting commenced on April 28 in Washington, D.C. This meeting is highly likely to be the final one chaired by Jerome Powell as head of the U.S. central bank.

Markets widely anticipate that the Federal Reserve will maintain the current overnight interest rate. Beyond the rate decision, focus for this meeting includes the pace of concluding the balance sheet runoff (quantitative tightening), the impact of oil price volatility on inflation, potential policy shifts stemming from the leadership transition following the confirmation of Kevin Warsh, and whether Chairman Powell will resign from the Fed's Board of Governors.

**Policy Stance** According to the CME Group's FedWatch tool, futures market pricing suggests the probability of an interest rate cut is nearly zero, influenced by inflation pressures, the Iran conflict, and labor market uncertainties. Since the outbreak of the Iran conflict in late February, rising international oil prices have driven significant increases in gasoline and jet fuel costs. The U.S. Consumer Price Index (CPI) rose 3.3% year-over-year in March, with energy commodities surging 10.9% month-over-month and gasoline prices jumping 21.2%. Many employers have paused hiring plans, and consumer confidence has fallen to a historic low.

The conflict has disrupted shipping through the Strait of Hormuz, elevating prices for oil and other commodities like fertilizers, petrochemicals, and aluminum. Economists worry that a prolonged conflict could destabilize an already fragile labor market. Former President Trump's comprehensive import tariffs and stricter immigration policies are seen as primary reasons for the labor market's weakness last year. While Trump recently announced an indefinite extension of the ceasefire with Iran, the U.S. naval blockade of Iranian ports remains in effect.

Analysis from Goldman Sachs indicates that a 10% rise in oil prices pushes core CPI up by approximately 0.1 to 0.2 basis points; however, this effect tends to diminish over time and is unlikely to significantly alter the Fed's inflation targets in the short term. Nevertheless, the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) index, is now projected to rise to 3.7% in Q2, 3.4% in Q3, and 3.2% in Q4. These forecasts are about 30 basis points higher than end-March estimates and remain substantially above the 2% policy target, increasing the risk of inflation expectations becoming unanchored.

Boris Schlossberg, Macro Strategist at BK Asset Management, stated that it is crucial to watch if the FOMC policy statement removes the characterization of inflation as "transitory." "Even if the surge in oil prices subsides, price levels remain elevated. Multiple signs suggest the window for appropriate timing to restart rate cuts in the near term has closed," he analyzed.

Concurrently, the U.S. labor market continues to display a balanced state of "low hiring, low layoffs." The March unemployment rate was 4.3%, but job growth remains concentrated in a few sectors, indicating widespread caution among businesses regarding expansion.

Nancy Vanden Houten, Chief U.S. Economist at Oxford Economics, noted, "Since the conflict began, labor market resilience has shown some signs of weakening, although initial jobless claims data from the past two months haven't revealed significant cracks. However, we maintain that the impact of soaring oil prices on the labor market takes time to manifest in the data."

Earlier this month, Chairman Powell, speaking at a Harvard University forum, suggested that standard operational procedure would call for the Fed to "look through" an oil price shock, as such shocks are typically transient. The critical factor, however, is preventing the public from developing entrenched high inflation expectations. He indicated the Fed does not need to make an immediate decision on rates, stating, "We are still uncertain about the economic fallout from the Iran conflict. The current policy stance is appropriate, allowing us to observe developments."

Economists at Bank of America wrote, "The Fed's April meeting will firmly hold rates steady. Upside inflation risks from the U.S.-Iran conflict have not dissipated, and labor data has shown some improvement. The key question is whether the forward guidance in the statement will indicate that policy risks are 'two-sided.' We think not, but the margin is slim. Powell is expected to strike a hawkish tone."

Deutsche Bank anticipates minimal overall changes to the post-meeting policy statement. Economic data released since the last meeting largely confirms the Fed's prior assessments: "solid" economic growth, "modestly soft" job gains, an unemployment rate that is "essentially unchanged," and inflation that "remains elevated." Should the Fed adjust language related to future policy adjustments, potentially characterizing risks to its dual mandate of employment and inflation as roughly balanced, it could signal a stronger hawkish stance. The bank has removed its expectation for a rate cut in September and now judges that the Fed will maintain the policy rate at its current neutral level for an extended period. Powell's overall messaging is expected to align with a policy of prolonged inaction.

The monthly cap for reducing the Fed's Treasury holdings has already been lowered from $60 billion to $30 billion. A survey of institutions shows most economists expect the quantitative tightening program to conclude around October 2026. This meeting may provide further clarity on the specific details for winding down the balance sheet reduction.

**Leadership Transition** Following the U.S. Department of Justice's decision on April 24 to drop its criminal investigation into Chairman Powell, a potential obstacle to Kevin Warsh's succession was removed. The Senate Banking Committee is expected to advance Warsh's nomination for Fed Chair to a full Senate vote on Wednesday. He is likely to be confirmed and assume office before Powell's term expires on May 15, presiding over the Fed's next policy meeting in June.

Throughout the year, former President Trump has publicly criticized Powell and the Fed's decision to maintain the benchmark interest rate at its current level, arguing that high federal funds rates hinder business and consumer borrowing, putting the U.S. at an economic disadvantage compared to countries with lower rates.

Addressing potential pressures, Warsh suggested during his Senate confirmation hearing last Tuesday that balance sheet reduction (QT) and interest rate cuts could proceed simultaneously. He explained that a gradual QT pace could create policy space for rate cuts and explicitly stated he would not become a policy puppet for the Trump administration, refusing to commit to setting specific interest rates as directed by the President.

A key point of interest for this meeting, beyond the policy statement, is whether Powell will remain on the Fed's Board of Governors. The outgoing Chairman is expected to be questioned about his personal plans during the press conference.

It has been previously reported that Powell indicated the conclusion of the investigation against him was a necessary condition for leaving the Board. Although it is traditional for a Fed Chair to resign from the Board after their term ends, he might choose to remain, deciding based on what is most beneficial for the institution and public service. This stance is closely linked to concerns about Trump's attempts to influence Fed independence. Powell could potentially remain a Governor until January 2028, the final full year of a potential Trump presidency, which would mean the President still could not control a majority of the Fed Board.

Reflecting on Powell's eight-year tenure, he enhanced the Fed's communication transparency, institutionalized post-meeting press conferences, strengthened policy communication with capital markets and global economies, and helped reduce irrational market volatility.

As the core guiding document for Fed policy, he led two major public reviews and revisions of the "Statement on Longer-Run Goals and Monetary Policy Strategy" in 2020 and 2025, introducing Flexible Average Inflation Targeting and shortfalls-from-maximum-employment assessments to address the effective lower bound on interest rates.

Regarding policy decisions, the Fed corrected its initial "transitory inflation" misjudgment, pivoting to a tightening path, thereby restoring its ability to guide price and employment expectations and stabilizing long-term market inflation expectations. He also oversaw improvements in bank supervision and liquidity tools, optimizing crisis response mechanisms. During the 2023 regional banking turmoil, the Fed promptly deployed liquidity and policy tools to prevent the spread of systemic financial risk.

Warsh's potential leadership could bring significant changes. During his testimony last week, he hinted that he might not commit to holding a press conference after every FOMC meeting. "Currently, press conferences are held regularly. If you ask for my personal, candid view, the Fed Chair and other FOMC officials speak quite frequently, and there is arguably no shortage of transparency," Warsh stated.

Warsh is also considering abandoning the Fed's long-standing practice of providing explicit forward guidance. He believes such guidance may not effectively stabilize markets and could instead limit the Fed's policy flexibility.

Regarding the potential impact of a policy shift, many Wall Street participants anticipate that a combination of simultaneous balance sheet reduction and interest rate cuts could push the U.S. Treasury yield curve higher, potentially benefiting high-growth sectors like technology.