The FOMC kept the stance of policy and their outlook unchanged in April as expected, at Powell’s last meeting as FOMC Chair.
As expected, the FOMC kept the stance of policy unchanged at its April meeting and, broadly speaking, portrayed a balanced baseline and risk outlook. This is despite not explicitly stating a hike is as likely as a cut – language the dissenters Hammack, Kashkari, and Logan arguably would have preferred. This outcome is consistent with our and the market’s expectations as well as the degree of uncertainty evident in financial markets – the price of Brent crude rising circa 7% today to USD120 per barrel while US equities held near record highs.
The Committee’s take on economic activity was sanguine, with GDP characterised as “expanding at a solid pace” and the unemployment rate “little changed in recent months” even as job gains “remained low”. Members’ views on the price outlook showed caution but not overt concern, with inflation simply characterised as “elevated”. “The Committee is [also] attentive to the risks to both sides of its dual mandate”, and Chair Powell noted in the press conference that, in his view, policy is in a good place to take time to monitor conditions, being at the “high end of neutral”, “perhaps mildly restrictive”.
We have been more concerned than the FOMC over domestic inflation stemming from capacity constraints and, in such an economic state, believe outsized and/or persistent second-round effects of energy and tariff inflation are meaningful risks. Still, with growth below trend in Q4 2025 and Q1 2026, and likely through mid-2027, there is no urgency to take a hawkish stance, let alone hike. Per Chair Powell’s remarks and current market pricing, the best course is to hold and continue assessing current conditions and uncertainties.
Like all other major central banks, the road ahead for the Federal Reserve is challenging. The domestic and international risks the economy and Committee face are disparate and could persist for some time. The FOMC will also have to navigate considerable US fiscal uncertainty over the year(s) ahead. A continued uptrend in the US 10-year yield, and consequently the 30-year mortgage rate, will limit the breadth of growth across the economy and weigh on household and financial market confidence. In time, it will also restrict the Government’s capacity to act against a meaningful deterioration in economic momentum as the interest burden grows. As such, we cannot discount policy rate cuts entirely, though they are more likely to be a topic of conversation in 2027 or 2028 than 2026.
Finally, with Kevin Warsh’s nomination for FOMC Chair advancing from the Committee stage to a full vote in the Senate, it is important to recognise this meeting was Powell’s last meeting as Chair. In the press conference though, Powell made clear he still intends to stay on as a Federal Reserve Governor, and consequently a member of the FOMC, until the investigations into the Federal Reserve are “well and truly over with finality and transparency”. The Department of Justice dropping their criminal investigation into the organisation and Chair Powell are a decisive step in that direction, but the Supreme Court decision in Lisa Cook’s case is still to come, and the Federal Reserve’s own investigation into construction costs has to be completed to rule out the Department of Justice re-opening its investigation. Powell remaining in place as a Governor over the period will provide continuity while these uncertainties are resolved.
