Key points:
- The Fed should keep rates unchanged despite the risk from the war in Iran.
- Inflation in the US rose in March, but the core measure remains under control for now.
- There will be no economic projections or rate guidance this month.
- Powell should adopt a moderately hawkish tone in light of inflation concerns.
- Future President Warsh suggests moving away from forward guidance.
- The Fed may start cutting rates in September.
The shock related to energy prices has already impacted US inflation. Consumer prices rose in March by 0.9% on a month‑on‑month basis – the strongest increase in almost four years – and by 3.3% on an annual basis, the highest level since May 2024.
Although a “full reopening” of the Strait of Hormuz should theoretically reduce upward pressure on inflation, the persistence of higher energy prices for some time seems likely, given that the strait is practically impassable and traffic through it will not resume overnight.
Chart 1: US Inflation (2024 – 2026)
Source: LSEG Datastream Data: 27.04.2026
Considering the inflation risk stemming from the war, we expect that during its press conference President Jerome Powell will adopt a moderately hawkish tone. As he did in March, he will likely describe the energy shock as a complicating factor rather than a driver for action. He will also place great emphasis on "uncertainty" rather than attempting to directly assess the scale of the inflation spike.
We believe this will help Powell signal to markets that the Fed is ready to act if elevated inflation persists, while also indicating that the baseline scenario remains unchanged rates, with the Federal Reserve assessing the war’s impact on the economy.
The conflict in Iran threatens both sides of the Fed’s dual mandate, as it also poses a risk to employment. Powell will likely note during the press conference that job growth is low but sufficient to keep pace with labor force growth. There will be no revision of economic projections or rates this month, but we think the Fed may soften its language regarding growth prospects and the labor market.
The Fed may also adjust its rhetoric to signal that – due to inflation concerns – the next move on rates may not necessarily be a cut. That would be a clear hawkish signal for the dollar.
New Sheriff in Town: Warsh Arrives
It’s time to tackle the taboo topic. The main backdrop for this month’s meeting is the nomination hearing of Kevin Warsh (Donald Trump’s candidate for FOMC Chair), which took place on April 21 – he presented his vision for radical changes at the Fed.
We view his remarks as having ambiguous implications for the dollar. Good news for markets is that Warsh appears determined to maintain the central bank’s independence, and there is nothing to suggest that Trump’s views will influence him.
Of course it is hard to fully trust Warsh, especially since Trump himself admitted he would be "disappointed" if the Fed under a new chair did not lower rates. While Trump’s nominee’s statements have so far been relatively encouraging, we will see what his actions say.
Warsh’s comments suggesting a move away from asset purchases are seen as positive for the dollar, but his plans to abandon forward guidance and shift to other inflation‑management frameworks create uncertainty and unpredictable consequences. For now the chair is Powell, and it may take some time before we get a clearer picture of how the Fed will look under Warsh, as his nomination still needs Senate approval.
It is assumed that Warsh will be more dovish than Powell; however, we believe his appointment will not significantly alter the path of US rates. He will be just one of many voting members of the FOMC.
The Next Move Will Likely Be a Cut
In our view, during several upcoming Fed meetings the Fed will keep rates unchanged, pausing to assess the scale of the war’s impact on the economy. We expect Powell to mention the inflation risk from the war on Wednesday, but not emphasize it enough for markets to price in rate hikes later in the year.
We believe the energy price spike will only delay cuts, not trigger a reversal in monetary policy, because the US’s status as a net exporter of energy should limit the pass‑through of higher oil prices to inflation.
Our baseline scenario assumes a rate cut in September, when future Chair Warsh takes office. His dovish stance on easing monetary policy could put pressure on the dollar, especially if rates in other economies, particularly the eurozone, are raised following the war.
The FOMC policy decision will be announced on Wednesday (29.04) at 20:00, and President Powell’s press conference will begin 30 minutes later.
Matthew Ryan, CFA – Head of Market Analysis at Ebury
