Tonight Powell's "Last Dance"

The results of the Federal Reserve’s April FOMC meeting are almost a foregone conclusion—interest rates will remain unchanged, but the real focus of this meeting lies in the signals that Chairman Powell will send in his final policy meeting as chair, and whether the committee will officially convey a hawkish stance of “rate cuts are essentially off the table.”

The Fed will announce its rate decision at 2:00 a.m. Beijing time on April 30, with the benchmark rate expected to stay within the 3.5% to 3.75% range. Market consensus is highly unified, with only Governor Miran expected to dissent, supporting a 25 basis point rate cut.

The latest changes come from the inflation front, as ongoing conflicts in Iran and energy shocks continue to disrupt outlooks. Gasoline prices remain above $4, and traffic through the Strait of Hormuz remains highly restricted. Meanwhile, recent employment data show resilience, weakening the urgency among dovish members to quickly support the labor market.

Federal Reserve officials generally expect that the decline in inflation will be delayed by another full year. Market expectations for rate cuts have significantly narrowed; Deutsche Bank has withdrawn its previous forecast of a rate cut in September, adjusting the baseline scenario to the Fed holding near the neutral rate “indefinitely.”

The core debate at this meeting centers on the language of the statement and the risk tone of the press conference—adding or removing a single word in the forward guidance could send very different policy signals to the market. Meanwhile, with the U.S. Department of Justice ending its investigation into Powell, the path for Kevin Wirth’s nomination as Fed Chair has become clearer, adding a historic significance to this meeting.

Consensus to hold steady, debate shifts to “what’s next”

This FOMC will not include a dot plot, and the rate itself is almost a certainty to stay unchanged. The focus is whether the Fed still wishes to retain the policy hint of “more likely to cut rates next,” or if it is beginning to acknowledge that risks are now balanced.

According to Bank of America, the inflation outlook remains as uncertain as it was at the March meeting. Although stock market trading seems to suggest the Iran conflict has ended, energy and shipping disruptions persist, and the transmission of conflict to core inflation remains highly uncertain.

On the employment side, there is not enough reason for the Fed to rush to dovishness. March non-farm payrolls, ADP data, and initial jobless claims all show a resilient labor market, with some signs of improvement. This makes it harder for members who previously advocated for rate cuts to continue emphasizing “downside employment risks” as the main policy rationale.

Doves are also tightening their stance, reducing the urgency for rate cuts

Before this meeting, the most notable internal change at the Fed was that members previously leaning dovish have begun to tighten their language.

Waller’s speech last week not only emphasized the inflationary risks from the Iran conflict but also mentioned shocks to labor supply. He believes this means the economy could “almost not need or not need net new employment” to keep unemployment stable. BofA suggests Waller may still hope for rate cuts this year, but the magnitude may be smaller than previously expected, and the timing later.

Daly’s comments go further. She stated that if policy remains unchanged throughout the year, it would help contain inflation well, without harming the labor market. She also believes that the impact of the Iran conflict on inflation may be greater than on growth. Daly’s baseline scenario now is for the interest rate path to remain flat throughout the year.

Even the most dovish FOMC member, Miran, indicated a preference for three rate cuts this year instead of four, citing the worsening inflation outlook since the beginning of the year. BofA suggests that if there is a dot plot at the April meeting, some members’ 2026 rate expectations will be raised, and by June, the risk of more “dots” moving higher will increase.

Language in the statement: a single word can send very different signals

The biggest focus of this FOMC statement is whether the Fed will hint that the policy path risks have shifted to “bipolar” (i.e., both sides).

Currently, the phrase “additional adjustments” in the statement implies a dovish expectation that the next move will be rate cuts. Changing it to “any adjustments” or removing “additional” altogether would mean the next move is no longer pre-committed to being a rate cut, officially opening the policy path to both sides. The March minutes showed that the number of members supporting a dual-risk language increased from “several” in January to “some,” with stronger wording.

Bank of America considers this a near 50-50 judgment, but most members still prefer to keep the current forward guidance language unchanged. Deutsche Bank leans toward believing that substantial guidance adjustments will be delayed until June, when the committee will have more clarity on Middle East developments, labor market stability, and inflation transmission, but the risks will clearly tilt hawkish.

Additionally, the statement is expected to include an adjustment: given the downward revision of Q4 GDP and softening consumer spending in January and February, the Fed might downgrade its description of economic activity from “solid” to “moderate.” However, BofA notes that this change is dovish in tone and somewhat contradictory to the overall message the committee wants to send—hawkish signals.

Press conference: Powell’s hawkish stance is inevitable

If this truly is Powell’s last press conference as chair, he is likely to maintain a moderately hawkish tone.

According to BofA, Powell’s core message may be that the Fed will remain steadfast, with current policy fully prepared to address the risks of its dual mandate. Given the high uncertainty, the Fed has no reason to contradict market pricing that expects rates to stay flat.

The most sensitive question at the press conference will be about the rate hike threshold. If Powell reiterates that rate hikes are not the baseline for most committee members, it could be interpreted as a dovish signal. If he emphasizes the importance of completing the inflation fight or notes that inflation has been above target for several years, it would be seen as hawkish.

Notably, in the March press conference, “inflation” was mentioned 67 times, while “labor market/employment/unemployment” was only mentioned 40 times, indicating inflation has clearly become the most influential factor in policy balancing. It is unlikely he will provide a specific quantitative threshold for rate hikes.

Regarding Iran, Powell is expected to acknowledge both upside risks to inflation and downside risks to growth and the labor market. But the market will pay more attention to which side he leans toward. If his tone is closer to Daly’s, implying the war impacts inflation more than growth, it could be viewed as very hawkish.

Is the rate cut on hold, or just postponed?

Nick Timiraos, known as the “New Federal Reserve News Agency,” wrote before the meeting that April’s meeting marks a deeper policy debate: how long can the Fed stick to the stance that “a rate cut next is more likely than a rate hike”?

Timiraos notes that two years ago, Powell downplayed concerns about stagflation, saying “neither stagnation nor inflation is visible.” But now, the energy shocks from war and inflation that has yet to return to 2% create a historical mirror of 1970s stagflation that no longer seems so distant.

He emphasizes that the Fed is watching how the U.S. economy absorbs the fourth supply shock in five years, including reopening after the pandemic, Russia-Ukraine conflict, tariffs, and the Iran war. Each shock alone might be seen as a one-off event not requiring policy response, but their combination makes managing inflation expectations more challenging.

Timiraos believes the statement itself could be as important as the rate decision. If the Fed modifies its formal language to suggest that rate cuts are now off the table, the market impact could be as significant as a policy move.

The final act and leadership transition

This meeting is also more closely watched because it could be Powell’s last FOMC as chair.

Powell’s term will end on May 15, and he has previously committed to serve as “interim chair” until his successor is confirmed. With the DOJ ending its investigation into Powell, the confirmation path for Kevin Wirth in the Senate has become clearer.

UBS expects Wirth to be sworn in before the June 16-17 FOMC meeting. If that happens, April’s meeting will be Powell’s last full policy communication window, and markets will focus on whether he leaves a “longer pause” policy starting point for the next chair.

Market reactions: tail risks beneath the non-event surface

Goldman Sachs trading desk suggests that the market generally views this FOMC as a low-volatility event, but certain assets remain sensitive to directional shifts.

In rates, Goldman analyst Brian Bingham expects no significant hawkish shift in the inflation language, with Powell reiterating a wait-and-see approach. However, current pricing only reflects about 5 basis points of change through December, and the threshold for further large sell-offs and actual rate hikes remains high. If the baseline scenario shifts, risks lean toward higher rates, fewer cuts, and a flatter yield curve.

In FX, Goldman trader Carlie Ladda believes that a slightly hawkish Fed could bring some dollar buying, but not enough to sustain a trend. The market remains more focused on Iran, corporate earnings, and month-end factors. The desk tends to sell dollars on dollar rebounds.

In equities, Goldman’s Vickie Chang notes that the main risk to stocks from the FOMC is if Powell, being more cautious, emphasizes the inflation risks from commodity price shocks, which could dampen risk appetite. Currently, risk assets have largely discounted conflict impacts, but downside tail risks may be underestimated.