The Fed will likely hold rates steady in what could be the last meeting of the Powell era

Written by Howard Schneider

WASHINGTON, April 29 (Reuters) – The Federal Reserve is expected to keep interest rates unchanged on Wednesday as officials discussed inflation risks in a policy statement issued after Jerome Powell’s final meeting as head of the U.S. central bank.

With oil prices high and rising again because of the US-led war with Iran, policymakers ahead of the Fed’s latest two-day session said they were more concerned that higher energy costs could turn from a one-off shock to lower inflation, with interest rates needing to stay longer than expected or, in the extreme, rise.

Stalled negotiations and the ongoing closure of the Strategic Strait of Hormuz have pushed the price of world-class oil back above $110 a barrel compared to around $70 before the US-Israeli bombing campaign against Iran began on February 28. The Fed’s preferred inflation estimate is about a percentage point higher than this week’s central bank numbers expected to be released by the central bank this week. rise even higher.

Traders see little chance the Fed will cut rates before the middle of next year, essentially betting against Fed Chair Kevin ⁠Warsh’s ability to convince his colleagues that rising US output will translate into lower inflation and allow for looser monetary policy.

“The news from the last meeting in March – better labor market data but no change in the dismal inflation data – may make the discussion more difficult,” but not to the extent that the Fed will reveal the potential need for rate hikes in its statement, said Michael Feroli, chief US economist at JPMorgan. Strong job growth in March pushed the unemployment rate down to 4.3%.

POWELL’S TIME IS ENDING

The Fed’s interest rate decision and new policy statement will be released at 2 pm EDT (1800 GMT). Powell is scheduled to hold a press conference in half an hour.

As well as detailing the results of the meeting and answering questions about the state of the economy, Powell may say more about his plans now that Warsh is expected to be confirmed as head of the Fed by the Senate during the central bank’s meeting on June 16-17.

Warsh’s nomination began to move forward last week after the US Department of Justice dropped a criminal investigation into the Fed’s construction project that key Republican leaders saw as an unfounded attack on Powell and the central bank’s independence. The Senate Banking Committee is scheduled to vote Wednesday to recommend Warsh for confirmation by the full Republican-controlled Senate.

Powell’s term as Fed chief ends on May 15, but his separate term as a member of the central bank’s Washington-based Board of Governors runs through January 2028.

At a press conference in March, Powell said he would not leave the board “until the investigation is complete,” but left open whether he would be able to continue as governor even after the investigation is complete.

“I have not made that decision. And I will make that decision based on what I think is best for the institution and the people we serve,” Powell said at the time.

(Reporting by Howard Schneider; Editing by Paul Simao)