No Fed rate move expected as Powell-Warsh shift looms. What to know

The Federal Reserve is likely to stay in wait-and-see mode and leave interest rates alone at the end of its two-day meeting April 29 as the Iran war risks driving up inflation and concerns about the job market linger. Rather than on the rate decision, the focus may be on Jerome Powell’s news conference, which could be his last as chair. Fed watchers will be looking for clues in his language about whether officials see inflation or weakness in the job market as the bigger threat. Concerns about a slowing labor market and a low-hire environment drove the Federal Open Market Committee to cut rates three times late last year. Those concerns haven’t gone away but were somewhat alleviated by the Labor Department’s estimate that U.S. employers added 178,000 jobs in March. Meanwhile, the department’s Consumer Price Index – its measure of inflation over the year – shot up from 2.4% in February to 3.3% in March. New tariffs from the Trump administration, along with higher oil prices and supply chain disruptions tied to the war, are likely to keep prices elevated in the near future. The key question is whether those inflationary shocks will be temporary or persistent, a distinction that depends on how long the war lasts. Forecasters overwhelmingly predict the committee will hold its interest rate steady at a range of 3.5% to 3.75%. No 'obvious' path for rates Powell downplayed concerns about stagflation in his news conference after the last rate decision, saying he reserves the term for a more serious set of circumstances. Still, Federal Reserve Bank of Chicago President Austan Goolsbee said it’s a scenario that keeps him up at night. “The possibility of stagflation outbreak coming from high oil prices before the tariff inflation went away, leading to the main engine of growth – the U.S. consumer – just giving up and saying we don't have confidence, we're going to start hoarding our money, and sending us into a stagflationary recession – that'd be the worst outcome," Goolsbee said April 7 at the Detroit Economic Club. At the same time, Goolsbee said, Americans’ incomes and the unemployment rate (4.3%) remain “strong.” He agreed with Powell there is no “obvious” path for rates. As of March 18, committee members’ median expectation for the federal funds rate at the end of 2026 was 3.4%, implying one quarter-point rate cut, but it could come in the second half of this year. “The ongoing uncertainty relating to the Strait of Hormuz reinforces the case for a Fed that remains on the sidelines – certainly for the upcoming meeting, and in all likelihood, for many months thereafter,” Sue Hill, head of government liquidity group at Federated Hermes, a global investment manager, said in a note to USA TODAY. Treasury Secretary Scott Bessent and Cleveland Federal Reserve President Beth Hammack – a voting member on the committee – have both suggested the Fed pause in April. The pending Powell-to-Warsh transition Under normal circumstances, the news conference after the April decision would be Powell’s last; his term as chair is set to end May 15 and the Federal Open Market Committee doesn't meet again until mid-June. But Powell has said he would remain in the position temporarily if his successor were not confirmed by the end of his term. President Donald Trump has nominated finance executive and former Fed Governor Kevin Warsh to the position, but his confirmation has been held up by Sen. Thom Tillis, R-North Carolina, who wanted to see the Justice Department's investigation into Powell dropped first. On April 24, the U.S. attorney for the District of Columbia, Jeanine Pirro, announced the department had closed the inquiry but said she would "not hesitate to restart a criminal investigation should the facts warrant doing so." The decision probably clears the way for Warsh's confirmation: Tillis confirmed in a social media post April 26 that he looks forward to supporting him. "I take the Department of Justice at its word: the investigation is closed, and any appeal of Judge Boasberg’s ruling will be with respect to legal principles and not for the purpose of reissuing subpoenas," Tillis said. "Only a criminal referral from the inspector general would cause a reopening of the investigation. "With these assurances, I look forward to supporting Kevin Warsh’s confirmation. He is an outstanding nominee, and it is time for the Federal Reserve to move beyond this distraction and return its full attention to its mission." Trump has threatened to fire Powell if he doesn’t step aside in mid-May, but Powell told reporters March 18 that staying in the role is “what the law calls for” if Warsh is not confirmed in time. He added he plans to continue serving on the Fed’s Board of Governors – his term there does not end until January 2028 – until the Justice Department’s investigation is “truly over.” "This scenario would raise significant legal questions, particularly since the legal case regarding the removal of Fed Governor Lisa Cook is still pending," Thrivent Chief Financial and Investment Officer David Royal told USA TODAY. "It would add further tension regarding the independence of the Federal Reserve, about which both markets and Congress have expressed serious concerns in the past. While any transition at the Fed can introduce a higher degree of market volatility, this scenario would almost certainly amplify volatility as markets look for clarity on next steps." If Warsh is confirmed, he may try to usher in a set of reforms at the Fed. In his confirmation hearing April 21, he suggested the central bank needs new tools, a new inflation framework, and a new communication style less focused on forward guidance. Isaac Wheeler, managing director of balance sheet strategy at Derivative Path, said that while much attention would be paid to a “showdown” between Trump and Powell if Warsh is not confirmed in time, for Main Street consumers, Warsh and Powell aren’t so different anyway. “To people like me who are in the market every day, yeah, he’s definitely different” Wheeler said. But “this pick, at the end of the day, is probably one of the most conventional things the administration has done. ... No one should expect the Fed to dramatically change overnight, or for rates to dramatically shift just because he’s been appointed.” What does the rate decision mean for consumers? Generally, the Fed lowers its benchmark interest rate to stimulate the economy and raises it to curb inflation. It holds rates steady when it believes monetary policy is in a good place, or when there are threats to both sides of its dual mandate. Lower interest rates make borrowing cheaper and can indirectly affect lending rates for auto loans, personal loans and credit cards. They also encourage businesses to invest and grow, which can lead to more hiring. Higher rates slow spending to keep inflation in check, which in theory can help consumers by stabilizing prices. Inflation and the labor market are not all under the Fed’s control, however. New tariffs and oil price shocks could keep prices high. A crackdown on illegal immigration that has limited the supply of workers, companies’ adoption of artificial intelligence, and a general sense of uncertainty have led many employers to halt large-scale hiring. William Stern, CEO and founder of small business lender Cardiff, said no business owner should see the Fed as a “superhero” who is going to save their company when they are often locked out of capital. “The guys who actually build this country are fighting for their lives against a unified enemy, which is permanent inflation,” Stern said. “As consumers and small business owners, we’ve got to make sure that we’re writing our own narrative and that there’s a happy ending. It just means that we can take the bull by the horns and make decisions independent whether or not we get a rate cut.” The Fed committee is expected to release its rate decision at 2 p.m. ET April 29, and Powell’s news conference will follow shortly after at 2:30 p.m. ET.