In what may turn out to be Jerome Powell’s concluding meeting as Federal Reserve chair, he is anticipated to guide his colleagues toward yet another careful pause since persistent inflation and a steady labor market leave scant opportunity for interest rate reductions.
The decision on Wednesday will unfold amidst high energy prices and a central bank that has remained above its 2% inflation target for the past five years, while the labor market is weak yet not in crisis. This situation does not bode well for easing, at least for now.
“Regarding the dual mandate, they would state we’re approximately at a stable labor market,” Roger Ferguson, an economist and former vice chair at the Fed, shared with CNBC. “On the inflation aspect of the mandate, [there’s] significantly more work to be accomplished with a stubborn 3% [inflation rate]. I hope they assert, ‘we’re going to hold firm for a little while to observe how this develops.’
Likewise, Goldman Sachs economist David Mericle predicts that the post-meeting statement “will probably recognize the improved labor market developments and elevated inflation figures but will leave the existing policy guidance untweaked. We foresee a strong consensus to remain on hold for now, with only one dissent, similar to March.”
Thus, with minimal tension surrounding the rate decision — markets are pricing in a 100% probability of the FOMC maintaining its position — focus will shift directly to Powell.
Unless an unforeseen event arises, the chair’s designated successor, Kevin Warsh, seems poised to assume control when Powell’s term concludes in May.
The transition complicates the usual indicating value of Powell’s post-meeting press briefing.
Inflation in focus
Powell’s post-meeting press conference, typically a significant event closely monitored by markets, may now serve less as a forecast for forthcoming policy actions and more as a farewell for a central bank leader who has experienced one of the most heated relationships with a president in the history of the institution.
“If Powell were to remain, I might attempt to interpret more from what he communicates at the press conference,” noted Jerry Tempelman, a former senior analyst at the New York Fed and currently vice president of economic and fixed income research at Mutual of America Capital Management. “However, considering that, in all likelihood, Kevin Warsh will soon assume the role of Fed chair, all the surrounding discourse, etc., might lose its significance.”
From a communication perspective, Tempelman anticipates the Fed will emphasize inflation, which most recently stood at 3% on a core basis excluding food and energy, following the central bank’s preferred metrics.
Crude oil prices are lingering around $100 a barrel and the national average of gasoline prices is climbing again, currently about $4.18 a gallon, further complicating the Fed’s trajectory.
Although Fed officials typically overlook such surges as temporary, they remain wary of longer-term consequences should conflicts in the Middle East intensify.
“Inflation has consistently exceeded expectations and is significantly above the Fed’s target,” Tempelman remarked. “Everyone anticipates this being Jay Powell’s concluding meeting. I also think there is little uncertainty about what the decision will be, specifically that there will be no adjustment to monetary policy at this meeting, and that from the June gathering onwards, it will be the Fed … led by Kevin Warsh.”
What’s next for Powell?
This does not, however, imply that Powell’s future will be determined. The current chair has the choice to remain at the central bank for the remaining two years of his governorship. So far, he has given no signal regarding his intentions.
During the March meeting, he mentioned he wouldn’t depart until the investigation concerning the renovations at the Fed’s headquarters is finalized. Jeanine Pirro, the U.S. attorney for the District of Columbia, transferred the investigation to the Fed’s inspector general’s office, an action that politically cleared the way for Warsh’s confirmation.
However, it is uncertain whether this will meet the “well and truly over” criteria that Powell established in March for his departure.
“I’m not convinced that the shift of this investigation from the Justice Department to another location fully meets the requirements of moving past this,” Ferguson stated. “If I were in his position or one of his advisors, I might hesitate to declare all clear.”
