This week, the global financial markets are reaching the climax of the "Super Week" for central banks — the Federal Reserve will announce its April interest rate decision in the early hours of Thursday Beijing time. This is most likely Powell's final meeting as Fed Chair, as the appointment of his successor, Kevin Waugh, was confirmed by the U.S. Senate last Friday, clearing the main obstacles previously faced. Against the backdrop of ongoing Middle East conflicts impacting energy markets and stubborn inflation, this meeting is not only a routine policy update but also a ceremonial prelude to a "handover of power."

Key points of the decision

1. Interest rate decision: Holding steady is a foregone conclusion

Market consensus is highly aligned. CME "FedWatch" shows a 100% probability that the Fed will keep rates unchanged in April. Before the Middle East situation clarifies, the Fed has no immediate need to act, and the current policy stance is viewed as "appropriate and can remain on hold as the situation develops."

2. Policy statement: Inflation wording is the key variable

Markets will scrutinize every word and phrase in the policy statement for changes. Focus points include: whether the phrase "transitory" will be removed: despite soaring oil prices, the Fed previously leaned toward "seeing through" short-term shocks. If the statement omits the description of inflation as "transitory," or explicitly mentions oil prices' transmission pressure on core inflation, it will be seen as a hawkish signal. Dual risk assessments: Deutsche Bank and UBS expect the Fed may hint in the statement that risks to employment and inflation are now "broadly balanced."

3. Balance sheet reduction process: Details at the final stage

Currently, the U.S. Treasury's monthly balance sheet runoff cap has been reduced from $60 billion to $30 billion. Surveys of economists suggest most expect quantitative tightening to end around October 2026, and this meeting may further clarify the specifics of the tapering process.

What issues will the Fed focus on amid Middle East shocks? Powell is expected to face intense questions about the impact of the Middle East war during the press conference. Based on current information, the Fed's focus is concentrated on three dimensions:

1. Oil price surge and the risk of inflation de-anchoring

Since the outbreak of Middle East conflicts in late February, international oil prices have risen sharply. In March, U.S. CPI rose 3.3% year-over-year, with energy commodities jumping 10.9% month-over-month. Goldman Sachs estimates that a 10% increase in oil prices can push core CPI up by about 0.1-0.2 percentage points. Powell may reiterate the stance of "temporarily ignoring" oil shocks but must also acknowledge the consequences if public inflation expectations become de-anchored.

2. Downward pressure on economic growth

High oil prices are not only an inflation issue but could ultimately harm economic growth. Oxford Economics notes that resilience in the labor market will take time to show cracks in the data. Powell needs to assess the dilemma of "stagflation" risk — the coexistence of rising inflation and slowing growth.

3. Supply chain disruptions in the Strait of Hormuz

Navigation through the Strait of Hormuz remains largely halted, with about 10 to 13 million barrels of oil per day unable to enter the market due to conflict. The Fed needs to evaluate the long-term impact of this ongoing supply shock on inflation expectations.

Interest rate cut prospects: Worry left to Waugh’s era?

1. Expectations for rate cuts this year have significantly diminished

Market expectations for Fed rate cuts this year have been sharply lowered; Deutsche Bank has canceled its forecast of a rate cut in September, judging that the Fed will keep the neutral rate unchanged for the foreseeable future.

2. Powell’s "parting words" likely to remain uncertain

In a Harvard discussion this month, Powell stated that the Fed "does not need to make immediate decisions on rate policy," and the current stance allows for "waiting and watching." At this meeting, Powell is expected to: refuse to give clear forward guidance, reaffirm the "data dependence" principle; — emphasize that the labor market remains robust, so there is no rush to cut rates; — not completely rule out future rate hikes but also not consider them as near-term options.

3. The suspense will shift to Waugh

The real policy shift may be left to his successor, Kevin Waugh. Waugh previously proposed a dual approach of tapering and rate cuts — gradual tapering could leave room for rate cuts. Jefferies economists say: "Under Waugh’s leadership, the Fed will be more 'dovish' on rates, and we expect two rate cuts this year."

Asset performance outlook

U.S. stocks: If Powell signals a hawkish stance (emphasizing inflation risks), stocks will face pressure. But the bad news is that five of the seven tech giants will report earnings this week, and their performance may influence the indices more than the rate decision itself. In the medium term, if Waugh promotes a "balance of tapering and rate cuts," it will push U.S. Treasury yields higher, benefiting high-growth sectors like technology.

Gold: Waiting for a breakout trigger

Gold accelerated its decline yesterday to a four-week low. If Powell’s hawkish tone causes U.S. bond yields to rise, gold prices will face short-term pressure. Gold is waiting for Powell’s potential wording changes as a trigger to add positions. If Powell admits that "war poses downside risks to growth," gold could break out of its range and possibly return to $4,700.

U.S. dollar: Maintaining high levels of suspense

Ahead of the decision, the dollar index rebounded in a wait-and-see mode. If Powell emphasizes inflation risks and downplays rate cut expectations, the dollar will gain further support. But if Powell acknowledges growth risks, the dollar may weaken, approaching mid-April lows.

Crude oil: Geopolitical premium remains high

If the Fed signals "maintaining high interest rates for a long time," it could theoretically suppress the economy and demand. But based on current market focus, geopolitical supply disruptions remain the dominant factor for oil prices. If Powell admits that "inflation risks will persist," it will instead reinforce oil’s hedging value.

Overall, the Fed’s decision is most likely to keep rates steady. Powell may not stir major waves in his "farewell show," leaving the biggest suspense for Waugh’s succession. The market’s real turning point may occur at the June meeting — when Waugh officially takes over, the Fed’s communication style and policy framework could undergo substantial change. For traders, the "low volatility" before the decision is not calm but a buildup for a breakout. Every word from Powell could become the first domino to break the deadlock.