Powell's "Last FOMC Meeting": Hold Steady, but with a More Hawkish Tone!

The outcome of the Federal Reserve's April FOMC Meeting holds little suspense—interest rates will remain unchanged. However, the real highlight of this meeting lies in what signals Powell will release during his last policy meeting as Chair, and whether the Committee will formally convey a hawkish stance to the market that an interest rate cut is basically off the table.

The Fed will announce its interest rate decision at 2:00 AM Beijing time on April 30. The benchmark interest rate is expected to remain unchanged in the 3.5% to 3.75% range. Market consensus is highly aligned, with only Governor Miran expected to dissent, voting in favor of a 25 basis point interest rate cut.

The latest changes stem from the inflation front. The Iran war and energy shocks continue to disrupt the outlook, with gasoline prices remaining above $4 and traffic in the Strait of Hormuz still heavily obstructed. Meanwhile, recent employment data has shown resilience, weakening the urgency for dovish members to call for immediate support for the labor market.

Fed officials generally expect that the decline in inflation will be delayed by another full year. Market expectations for an interest rate cut have narrowed significantly. Deutsche Bank has withdrawn its previous forecast for a September cut, adjusting its baseline scenario to the Fed holding steady "indefinitely" near the neutral rate.

The core game of this meeting focuses on the wording of the statement and the risk characterization in the press conference—the addition or deletion of a single word in the forward guidance could convey vastly different policy signals to the market. At the same time, as the U.S. Department of Justice terminates its investigation into Powell, Kevin Warsh's path to nomination as Fed Chair is largely clear, adding historical significance to this meeting.

Holding Steady Becomes Consensus, Debate Shifts to "Next Steps"

There is no dot plot at this FOMC Meeting, and the interest rate itself is hardly in doubt. The focus is on whether the Fed is still willing to retain the policy hint that "the next move is more likely to be a cut," or if it will begin to acknowledge that risks have shifted to two-sided.

According to Bank of America, the current inflation outlook is 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 remains high uncertainty regarding the transmission of the conflict to core inflation.

The employment side has not provided sufficient reason for the Fed to rush into a dovish pivot. Data such as March non-farm payrolls, ADP employment, and initial jobless claims all show resilience in the labor market, with even some signs of improvement. This means that members who previously advocated for rate cuts will find it harder to continue emphasizing "downside risks to employment" as the primary basis for policy.

Dovish Members Also Tighten Stance, Urgency for Rate Cuts Diminishes

Before this meeting, the most notable change within the Fed was the successive tightening of rhetoric by previously dovish members.

In his speech last week, Waller not only emphasized the upside inflation risks brought by the Iran war but also mentioned labor supply shocks. He believes this means the economy might require "little to no net job growth" to maintain a stable unemployment rate. Bank of America believes that while Waller may still hope for rate cuts this year, the magnitude of cuts may be smaller than previously expected, and the timing may be later.

Daly's stance went a step further. She stated that if policy remains unchanged throughout the year, it would provide good constraint on inflation without restricting the labor market to the point of harm. She also believes that the impact of the Iran war on inflation may be greater than its impact on growth. Daly's current baseline scenario has shifted to a flat interest rate path for the year.

Even Miran, the most dovish member of the FOMC, stated that he favors three rate cuts this year rather than four, citing a worsening inflation mix since the beginning of the year. Bank of America believes that if there were a dot plot at the April meeting, some members' interest rate expectations for 2026 would already have shifted upward, and by June, the risk of more "dots" moving up continues to increase.

Statement Wording: A Single Word Difference, Distinctly Different Signals

The biggest highlight of this FOMC statement is whether the Fed will hint that policy path risks have shifted to "two-sided."

The current statement's reference to "additional adjustments" implies a dovish presumption that the next move will be a rate cut. If this is changed to "any adjustments" or if "additional" is directly removed, it means the direction of the next move is no longer presumed to be a cut, and the policy path officially shifts to being open in both directions. The March Minutes showed that the number of members supporting the adoption of a two-sided risk description increased from "several" in January to "some," with strengthened firmness in wording.

Bank of America believes this is a near 50-50 judgment, but most members still tend to keep the existing forward guidance language unchanged. Deutsche Bank tends to believe that substantive guidance adjustments will be delayed until June, when the Committee will have clearer judgments on the Middle East situation, labor market stability, and inflation transmission paths, but the risk clearly leans hawkish.

Additionally, one adjustment is expected in the statement: Given the downward revision of Q4 GDP and weak consumer spending in January and February, the Fed may downgrade its description of economic activity from "solid" to "moderate." However, Bank of America points out that this adjustment itself carries a dovish color, which somewhat contradicts the Committee's current overall intention to convey a hawkish signal to the market.

Press Conference: Powell's Tough Stance Is Imperative

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

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

The most sensitive question at the press conference will be the threshold for rate hikes. If Powell reiterates that rate hikes are not the baseline scenario for the majority of the Committee, the market may interpret this as a dovish signal. If he emphasizes more strongly the importance of completing the anti-inflation task, or points out that inflation has been above target for several consecutive years, it will be seen as a hawkish signal.

Notably, "inflation" was mentioned 67 times at the March press conference, while "labor market/employment/unemployment" was mentioned only 40 times. Inflation has clearly become the heaviest weight on the policy scale. He is not expected to provide a quantitative threshold for rate hikes.

Regarding the Iran war, Powell is expected to acknowledge both the upside inflation risks and the downside risks to growth and the labor market. However, the market is more concerned with which side he leans toward. If his statement aligns closely with Daly's, implying that the war's impact on inflation is greater than on growth, the market may view this as very hawkish.

Focus: Is the Rate Cut Shelved or Just Delayed?

Nick Timiraos, known as the "New Fed Communications Channel," wrote before the meeting that the April meeting marks a node in a deeper policy debate: how long the Fed can maintain its stance that "the next move is more likely to be a cut than a hike."

Timiraos pointed out that two years ago, Powell downplayed stagflation concerns, stating he saw "neither stagnation nor inflation." But now, with energy shocks triggered by war superimposed on inflation that has not yet returned to the 2% target, the historical mirror of 1970s stagflation is no longer as distant as it once seemed.

He emphasized that the Fed is observing how the U.S. economy digests the fourth supply shock within five years, including the post-pandemic reopening, the Russia-Ukraine conflict, tariff turmoil, and the Iran war. Each shock, viewed individually, might be interpreted as an isolated event requiring no policy response, but their continuous accumulation makes managing inflation expectations more tricky.

Timiraos believes that the statement itself may be as important as the interest rate decision. If the Fed modifies the formal statement wording to imply that an interest rate cut is basically off the table, its market impact could be no less than a policy action.

The Last Dance and Transition of Power

This meeting has attracted more attention also because it may be Powell's last FOMC Meeting as Chair.

Powell's term as Fed Chair expires on May 15. He previously promised to serve as "Acting Chair" until his successor is confirmed. With the DOJ stopping its investigation into matters related to Powell, Kevin Warsh's confirmation path in the Senate is clearer.

UBS expects that Kevin Warsh may be sworn in before the FOMC Meeting on June 16-17. If this pace materializes, the April meeting will become the last complete policy communication window of the Powell era, and the market will pay closer attention to whether he leaves a policy starting point of "no rate cuts for longer" for the next Chair.

Market Reaction: Tail Risks Beneath the Non-Event Facade

Views from Goldman Sachs' trading desk show that the market overall views this FOMC Meeting as a low-volatility event, but different assets still have directional sensitivity points.

Regarding interest rates, Goldman Sachs analyst Brian Bingham expects no significant hawkish shift in inflation wording in the statement, and Powell will reiterate a wait-and-see approach. However, with only about 5 basis points of change priced in from now until December, the threshold for further significant selling and pricing in a substantial probability of rate hikes is high. If the baseline scenario deviates, risks are more likely to point toward higher rates, fewer cuts, and a flatter curve.

Regarding foreign exchange, Goldman Sachs trader Carlie Ladda believes that a slightly hawkish Fed may bring some USD buying, but it is unlikely to form a sustained trend. The market remains more focused on the Iran situation, corporate earnings, and month-end factors. The trading desk tends to sell the USD on rebounds.

Regarding stocks, Goldman Sachs' Vickie Chang pointed out that the main risk of the FOMC to the stock market is that if Powell more cautiously emphasizes inflation risks brought by commodity price shocks, it could dampen risk appetite. Risk assets have currently largely discounted the impact of the conflict, and downside tail risks may be underestimated.