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The Federal Reserve is expected to keep its present monetary policy on Wednesday, since the economy is showing indications of growth despite confronting more hurdles, and inflation is being pushed up by rising transportation fuel prices.
The ongoing situation in the Middle East likely means a hawkish hold as current Fed Chair Jerome Powell approaches his final address.
After eight years as the Fed boss, Powell will head his last FOMC news conference this week.
Interest rates will be kept unchanged at 3.50-3.75% and headline inflation will return to 3.3%.
Kevin Warsh, Trump's Fed nominee, will likely take over the corner office beset with unanswered questions, a $6.7 trillion balance sheet, a CPI increase fuelled by oil, and a crypto market that has adjusted to the fluctuations in central bank liquidity.
"Hawkish Hold"
There has been no change in the pricing of Fed funds futures contracts leading up to the April 29th Fed policy announcement.
But the market is generally pricing in the possibility of rate decreases, with around 10 basis points of easing anticipated by year-end.
Despite a more bullish outlook among economists, who predict two 25 basis point reductions in the second half of 2026, the Fed itself has only incorporated one 25 basis point decrease in its March economic projections for the year.
BRN continues to anticipate two rate reductions this year: one in September and another in December.
Powell in Focus
News conferences are usually reserved for chairmen, but on May 15th, Powell will ostensibly make his last appearance.
Because of this, people will want to know how he views his legacy, how he gets along with Trump, and whether he plans to stay at the Fed until January 2028, when his term as governor ends.
But it may not be his last stint as chair of the Fed yet.
Kevin Warsh's confirmation as Powell's successor will remain stalled in the Senate Banking Committee until Republican Thom Tillis is persuaded that the Department of Justice's "vindictive prosecution" of Powell, pertaining to the renovation of the Fed's headquarters, has been resolved.
There is conflicting news on that front.
On Friday, US Attorney Jeanine Pirro announced that the Department of Justice concluded its investigation into Powell related to the renovation of the Fed's headquarters. Rather, an internal review would be conducted under the direction of the central bank's inspector general.
However, the following day, President Trump stated that the investigation had not been discontinued.
Current tensions between the President and the Fed are expected to be exacerbated by Powell's indication that he will stay in his post "pro tempore."
Powell vs. Yellen
In February 2018, Janet Yellen provided Jerome Powell with a stable environment. Interest rates hovered around 1.5%, overall inflation remained close to the 2% goal, and the balance sheet was intentionally contracting.
Powell transitioned into his role from a background in law and private equity, rather than from an academic economics perspective.
He received a favorable economic situation and attempted to maintain it with incremental increases throughout 2018 until the trade conflict necessitated a change in strategy.
Yellen presided over an era of relative calm, with no recessions and few surprises.
On the other hand, during Powell's eight years in office, three regional banks failed due to crypto cracks in the span of 10 days, the biggest balance sheet ever recorded, the greatest inflation rate since 1981, and a pandemic-induced closure.
Proponents of Powell assert that his most significant moment will come in March of 2020.
In just under three weeks, the Fed lowered interest rates to zero, restarted asset purchases, and established nine emergency lending facilities.
The influx of liquidity played a crucial role in stabilizing the markets and can be seen as a pivotal factor in the initial institutional adoption of Bitcoin.
The price of Bitcoin surged from around $5,000 in March 2020 to an impressive high of over $69,000 by November 2021, closely following the growth of the Fed's balance sheet, which approached $9 trillion.
Later on, a chance to recuperate presented itself.
To prevent a deep recession or a slump in the labor market, Powell raised the policy rate from zero to five and a half percent, the most aggressive tightening plan since Paul Volcker.
Furthermore, he reshaped the government's position on digital assets by the conclusion of 2024.
A comment from Powell at the DealBook Summit—"like gold, only it's virtual"—contributed to Bitcoin surging past $103,000 in just one session.
Back then, the Fed boss said, "It’s just like gold, only it’s virtual. People are not using it as a form of payment or as a store of value. It’s highly volatile. It’s not a competitor for the dollar, it’s really a competitor for gold."
Powell's Losses
On the other hand, the characterization of the 2021 inflation surge as “transitory” continues to shape the ongoing critique.
Powell held off on raising rates until March 2022, despite the Consumer Price Index showing increases over 7%, a delay that Warsh has labeled a “fatal policy error.”
Fed nominee, Kevin Warsh, in his testimony before the Senate Banking Committee on April 21, said "Once you let inflation take hold in the economy, it is more expensive and harder to bring it down, and so the fatal policy error going back four or five years is still a legacy that we are dealing with…we need a regime change in the conduct of policy."
Over the course of 16 months, eleven rate increases were the consequence of the delayed rate hike cycle.
As a result of heavy losses on long-term Treasuries, Silicon Valley Bank, Signature Bank, and First Republic collapsed in March 2023, caught unawares by the quick changes.
Things became worse because of a lack of clear communication.
Traders' faith in the Summary of Economic Projections plummeted to levels not seen in years as a result of the unpredictable future predictions made during 2022 and 2023.
Politics intervened in 2025 when Powell was the subject of an inquiry that the DOJ later ended, briefly delaying Warsh's confirmation.
What Does Powell Leave the Fed At?
Warsh takes the helm of a central bank operating under stricter liquidity conditions than the markets anticipated.
The federal funds target remains steady at 3.50 to 3.75% for the third consecutive meeting, with the March dot plot indicating just one reduction anticipated for 2026 and another for 2027.
Inflation has turned red hot.
Following a substantial 21.2% monthly increase in fuel costs associated with the situation in Iran, the Consumer Price Index soared to 3.3% in March, up from 2.4% in February.
Up from 2.4% in the last estimate, policymakers now expect core PCE to reach 2.7% in 2026.
Warsh suggested a potential shift in strategy.
In his confirmation hearing, Warsh conveyed to senators that the Fed needs a "different, new inflation framework," and suggested he would discontinue the tradition of holding news conferences right after meetings, and assured that he would not be a "sock puppet" for anyone.
Another objective he aims to achieve is to decrease the scale of the $6.7 trillion balance sheet.
Under oath, Warsh asserted that a more streamlined central bank would lead to a more robust economy, improved inflation, and reduced interest rates.
Warsh & Crypto
Crypto merchants are encountering a challenging landscape.
Warsh demonstrates a bolder approach compared to Powell when it comes to managing inflation, while also expressing a more optimistic perspective on digital assets.
This dual approach yields mixed outcomes for risk markets.
His recent views on Bitcoin are positive, calling it a "sustainable store of value," his opposition to a CBDC for retail use, and his belief that cryptos are already part of the US banking system.
Warsh unveiled a portfolio worth over $100 million that comprised Layer 1 networks, DeFi technologies, and the Bitcoin payment infrastructure.
Bitcoin will continue to be pressured by the present restrictive liquidity position.
As the dot plot has cemented, Bitcoin has fallen from its January high, putting traders in a difficult position between a central bank that wants to keep its stance and a candidate that wants to reduce it.
Within the same argument is a longer case for Bitcoin.
Former Fed governor Mark Spindel has suggested that forceful central bank policy bolsters the justification for non-sovereign reserves, and Warsh’s approach might examine that argument from a broader perspective.
Wednesday Outlook
We shouldn't anticipate any ground-breaking revelations about the trajectory of monetary policy going forward.
Minutes from the most recent meeting showed that many on the committee were pessimistic about the outlook for employment hazards, and that, because of economic difficulties caused by events in the Middle East, inflationary pressures are likely to increase slowly.
It is anticipated that the committee would maintain its current evaluation process, showing little signs of impending policy changes.
Powell will give his last public remark as Fed boss during the news conference on April 29.
Markets will look for:
- Suggestions regarding the anticipated reductions that have yet to materialize.
- The renewed battle against inflation is heating up.
- It remains to be seen if Powell will pass Warsh a straightforward opportunity or a challenging one.
The prospect of Powell's continued service on the Board of Governors until 2028 is one he has not ruled out.
If he withdraws entirely on May 15, Warsh will make his first appearance at the next FOMC, and the policy framework he wants to change will start to take shape as he goes.
Traders are taking note of this meeting since it may be Jerome Powell's last public appearance as head of the organization.
Close to his departure on May 15, the market is wondering if he would go with a strong position, maintain high rates, or soften his words.
Then, on Thursday, April 30, data on the gross domestic product (GDP) of the United States will be released.
Is the economy able to avoid stagnation, or will risk assets like Bitcoin face increasing pressure?
The answer to this year's most important question will be revealed by the forthcoming data.
