The U.S. Federal Reserve (Fed) is expected to keep its interest rates unchanged at its upcoming monetary policy meeting next week, due to persistent high energy prices and supply chain disruptions caused by the conflict in the Middle East.
The Fed’s two-day meeting, which begins on April 28, could be Jerome Powell’s last at the helm of the independent agency. However, this event unfolds in a difficult context: his successor will face significant obstacles in the confirmation process, while policymakers face conflicting pressures, with surging fuel prices driving inflation and persistent concerns about the labor market.
In this context, Fed officials are expected to keep the federal funds rate between 3.50% and 3.75%, thereby prolonging the pause started earlier in the year.
The Federal Reserve has a dual mandate: to maintain price stability and to ensure a low unemployment rate. It tends generally to hold interest rates high to curb inflation or to lower them to stimulate growth. In the current context, Fed officials therefore face conflicting decisions.
Furthermore, Powell is expected to make no specific commitments regarding the evolution of interest rates, as the total impact of the Iran conflict remains uncertain.
As this standoff enters its ninth week, Fed officials should focus more on reigning in inflation than on the labor market at this meeting.
U.S. consumer inflation rose in March to its highest level in nearly two years, at 3.3%, driven by the surge in energy costs. Christopher Waller, a Federal Reserve governor who has previously spoken in favor of rate cuts to support employment, indicated earlier this month that a prolonged conflict could complicate a rate cut by the Fed this year.
Meanwhile, it is widely believed that the recent positive employment data have created some room for the Fed to temporarily focus more on inflation issues. Analysts will also watch closely whether the Fed will announce a possible rate increase at its meeting.
