Tonight, Powell's "final dance": likely to hold steady, but with a stronger hawkish tone!

Release Time：2026-04-29

The outcome of the Fed's April FOMC meeting is almost certain - interest rates will remain unchanged. However, the real focus of this meeting lies in what signals will be sent by Powell in his last policy meeting as chair and whether the committee will officially convey to the market a hawkish stance that "rate cuts are basically off the table".

The Federal Reserve will announce its interest rate decision at 2:00 a.m. Beijing time on April 30. The benchmark interest rate is expected to remain unchanged within the range of 3.5% to 3.75%. Market consensus is highly consistent, with only one dissenting vote expected from Governor Miran, who is anticipated to support a 25 basis point rate cut.

The latest changes come from the inflation side. The Iran war and energy shock continue to disrupt the outlook. Gasoline prices remain above $4, and the traffic in the Strait of Hormuz is still highly obstructed. Meanwhile, the recent employment data shows resilience, weakening the urgency of dovish committee members to support the labor market as soon as possible.

Fed officials generally expect that the decline in inflation will be postponed for another full year. Market expectations for rate cuts have narrowed significantly. Deutsche Bank has withdrawn its previous prediction of a rate cut in September and adjusted its base scenario to the Fed remaining "on hold indefinitely" near the neutral rate.

The core of the game at this meeting was focused on the wording of the statement and the risk characterization at the press conference - the addition or deletion of a single word in the forward guidance could convey a completely different policy signal to the market. Meanwhile, with the US Department of Justice ending its investigation into Powell, Kevin Warsh's nomination as the chair of the Federal Reserve has become almost unobstructed, which also makes this meeting more historically significant.

Consensus has emerged to hold back, and the debate has shifted to "the next step"

This FOMC meeting has no dot plot, and there is almost no suspense regarding the interest rate itself. The focus lies in whether the Federal Reserve is still willing to retain the policy hint that "the next move is more likely to be a rate cut" or start acknowledging that risks have shifted to be two-way.

According to Bank of America, the current inflation outlook remains as unclear as it was at the March meeting. Although the stock market is trading as if the Iran war has ended, energy and shipping disruptions persist, and there is still high uncertainty regarding the transmission of the conflict to core inflation.

The employment side has not provided sufficient reasons for the Federal Reserve to rush to turn dovish. Data such as the March non-farm payroll, ADP, and initial jobless claims all indicate that the labor market is resilient and even shows some signs of improvement. This means that even those committee members who previously advocated for rate cuts will find it more difficult to continue emphasizing "downside risks to employment" as the main policy basis.

The dovish camp is also tightening, and the urgency of cutting interest rates is waning.

The most notable change within the Federal Reserve ahead of this meeting was that the previously dovish committee members successively tightened their stances.

Last week, Waller not only emphasized the inflationary risks brought about by the Iran war but also mentioned the labor supply shock. He believes that this means the economy may be able to maintain a stable unemployment rate "with little or no net new job creation". Bank of America believes that Waller may still hope for a rate cut this year, but the extent of the cut may be smaller than previously expected and the timing may be later.

Daly's statement went further. She said that if the policy remained unchanged throughout the year, it would impose a good constraint on inflation without restricting it to the extent of harming the labor market. She also believed that the impact of the Iran war on inflation might be greater than that on growth, and Daly's current baseline scenario had become a flat interest rate path for the entire year.

Even the most dovish member of the FOMC, Miran, indicated that he prefers three rate cuts this year rather than four, citing the deterioration of the inflation mix since the beginning of the year. Bank of America believes that if the April meeting includes a dot plot, the 2026 interest rate expectations of some committee members will already have moved up, and by June, the risk of more "dots" moving up is still increasing.

A single word difference can convey a completely different message.

The most notable aspect of this FOMC statement is whether the Federal Reserve will hint that the risks to the policy path have shifted to being "two-way".

The current statement's reference to "additional adjustments" implies a dovish assumption that the next move will be a rate cut. If it is changed to "any adjustments" or "adjustments" without "additional", it means that the direction of the next move is no longer pre-assumed to be a rate cut, and the policy path officially becomes two-way open. The minutes of the March meeting show that the number of committee members supporting the adoption of a two-way risk statement has increased from "several" in January to "some", and the firmness of the wording has also strengthened.

Bank of America believes that this is a nearly 50-50 call, but the majority of the committee still leans towards keeping the current forward guidance language unchanged. Deutsche Bank, on the other hand, leans towards the view that a substantial adjustment to the guidance will be postponed until June, when the committee will have a clearer understanding of the situation in the Middle East, the stability of the labor market, and the path of inflation transmission. However, the risks are clearly skewed towards a hawkish stance.

In addition, it is expected that there will be one adjustment in the statement: Given the downward revision of the fourth-quarter GDP and the weak consumer spending in January and February, the Fed may downgrade the description of economic activity from "solid" to "moderate". However, Bank of America pointed out that this adjustment itself has a dovish tone and is somewhat contradictory to the overall intention of the committee to convey a hawkish signal to the market at present.

Press Conference: Powell's Tough Stance Is Inevitable

If this is indeed Powell's last press conference as chair, he is likely to maintain a moderately hawkish stance.

According to Bank of America, Powell's core message may be that the Fed will remain firmly on hold, with current policy well-prepared to address the risks to its dual mandate. With uncertainty still high, the Fed has no reason to counter market pricing of a flat interest rate path.

The most sensitive issue at the press conference is the threshold for interest rate hikes. If Powell reiterates that a rate hike is not the baseline scenario for the majority of the committee, the market may interpret it as a dovish signal. If he emphasizes more the importance of completing the task of fighting inflation or points out that inflation has been above the target for several consecutive years, it will be regarded as a hawkish signal.

It is worth noting that at the March press conference, "inflation" was mentioned 67 times, while "labor market/employment/unemployment" was only mentioned 40 times. Inflation has clearly become the heaviest weight on the policy scale. It is expected that he will not set a quantitative threshold for interest rate hikes.

Regarding the Iran war, Powell is expected to simultaneously acknowledge the upside risks to inflation as well as the downside risks to growth and the labor market. However, the market is more concerned about which side he leans towards. If his statement is close to Daly's, that is, the war has a greater impact on inflation than on growth, the market may view it as very hawkish.

Is the focus on interest rate cuts stranded or merely postponed?

Nick Timiraos, known as the "New York Fed's Fedwire", wrote before the meeting that the April meeting marked a turning point in a deeper policy debate: How long can the Fed maintain its stance that "the next move is more likely to be a rate cut than a rate hike"?

Timiraos pointed out that two years ago, Powell had downplayed concerns about stagflation, saying that "neither stag nor inflation was in sight." But now, the energy shock triggered by the war, combined with inflation that has yet to return to the 2% target, has made the historical mirror image of the 1970s stagflation no longer as distant as it once seemed.

He emphasized that the Federal Reserve is observing how the US economy is digesting the fourth supply shock in five years, including the pandemic restart, the Russia-Ukraine conflict, the tariff disputes and the Iran war. Each shock, when considered alone, could be interpreted as an isolated incident that does not require a policy response, but when they are superimposed continuously, the management of inflation expectations becomes more challenging.

Timiraos believes that the statement itself could be as important as the interest rate decision. If the Fed modifies the wording of its official statement to suggest that a rate cut is largely off the table, the market impact could be no less significant than a policy move.

The Final Dance and Position Handover

This meeting has drawn even more attention because it might be Chair Powell's last FOMC meeting during his tenure.

Powell's term as the chair of the Federal Reserve will expire on May 15. He previously committed to serving as a "temporary chair" until a successor is confirmed. With the DOJ halting its investigation into matters related to Powell, Kevin Warsh's path to Senate confirmation has become clearer.

UBS expects Kevin Warsh to be sworn in before the FOMC meeting on June 16-17. If this schedule is fulfilled, the April meeting will be the last complete policy communication window in the Powell era, and the market will pay more attention to whether he leaves a policy starting point of "not cutting interest rates for a longer time" for the next chair.

Market Reaction: Tail Risk in Disguise of Non-Event

Goldman Sachs trading desk views indicate that the market as a whole regards this FOMC meeting as a low-volatility event, but there are still directional sensitivities for different assets.

In terms of interest rates, Goldman Sachs analyst Brian Bingham expects no significant hawkish shift in inflationary language in the statement. Powell will likely reiterate the need to wait and see. However, with only about 5 basis points of movement priced in from now until December, the threshold for further significant selling and factoring in a substantial probability of an actual rate hike is relatively high. If the baseline scenario deviates, the risk is more likely to point towards higher rates, fewer rate cuts and a flatter curve.

In terms of foreign exchange, Carlie Ladda, a trader at Goldman Sachs, believes that the Fed's slightly hawkish stance may bring some dollar buying, but it is unlikely to form a sustained trend. The market remains more focused on the situation in Iran, corporate earnings reports, and month-end factors. The trading desk is inclined to sell the dollar when it rebounds.

In terms of stocks, Vickie Chang of Goldman Sachs pointed out that the main risk to the stock market from the FOMC is that if Powell more cautiously emphasizes the inflation risk brought by the commodity price shock, it may dampen risk appetite. Currently, risk assets have largely downplayed the impact of the conflict, and the downside tail risk may be underestimated.

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