Fed Rates Seen on Hold at April Policy Meeting

Key Takeaways

• Market watchers expect the Fed to hold interest rates steady this week, at what could be Jerome Powell’s final meeting as chair.
• Economists and traders are looking for indications of whether the spike in oil prices caused by the Iran war could stoke inflation.
• Traders no longer expect rate cuts in 2026.

Federal Reserve officials are meeting this week to decide the course of interest rates, as the Iran war continues to complicate the inflation outlook. Analysts expect the Fed to keep its rate target unchanged at its current range of 3.50%-3.75% at its next meeting, scheduled for April 28-29. “It should be a pretty boring meeting as it relates to the impact on interest rates or changes to the Fed’s balance sheet,” says Lawrence Gillum, chief fixed income strategist for LPL Financial.

That’s quite a change from the beginning of the year, when the market was expecting more rate cuts after the central bank reduced its target on Dec. 10. Now “the market is pricing in no rate cuts until the middle of next year,” Gillum says.

Keep an Eye on Oil and Inflation

Nancy Vanden Houten, lead US economist at Oxford Economics, said she’ll be watching the press conference to see whether “the balance of risks has changed” since the last FOMC meeting in March. “It was clear they saw increased upside risks for inflation, as well as increased downside risk for the labor market,” she says. At the time, the Fed noted that “the implications of developments in the Middle East for the US economy are uncertain.”

In March, consumer prices jumped 3.3% year over year, owing to surging energy prices. Forecasting inflation is difficult “because of the uncertainty over how long this war will last, and once it ends, how long it will take for oil production to resume to something more normal and for prices to come down,” explains Vanden Houten. She assumes the war will be resolved and oil prices will peak this quarter. She continues to expect the Fed to cut rates in June and then in September, but she acknowledges that this is an outlier view.

Michael Feroli, chief US economist for JP Morgan, expects the Fed to hold interest rates steady for the rest of 2026, then raise its target range by 0.25 percentage point in the third quarter of 2027. “However, the Fed could cut rates if the labor market weakens significantly, or if the economic fallout from higher energy prices becomes more severe,” he says.

Powell’s Last Meeting as Chair?

This meeting may mark Jerome Powell’s last press conference and meeting as Fed chair. Kevin Warsh, a former Fed governor who is President Trump’s nominee to succeed Powell, faced a Senate Banking Committee confirmation hearing on April 21. If confirmed, he would take over when Powell’s term ends next month.

Confirmation looks more likely now that the US attorney for Washington, DC said she would drop an investigation into Powell related to cost overruns in a renovation of the Fed’s headquarters. North Carolina senator Thom Tillis has said he wouldn’t vote to confirm Warsh until the Justice Department dropped its investigation. Trump has criticized Powell for not bringing the Fed’s benchmark down. During his hearing, Warsh said he made no rate cut promises to Trump.