Powell's Last FOMC, Core Suspense Lies in Statement Language

Today will be Powell's last FOMC meeting as the Chairman of the Federal Reserve, whose term will expire on May 15th.

The market has little doubt about this interest rate decision, which will be the third consecutive pause this year. Wall Street Journal reporter Nick Timiraos said that this meeting marks a deeper debate, how long can the committee maintain the stance that "the next move is more likely to be a rate cut than a rate hike"?

Core Suspense: Contention Over Statement Language

More noteworthy than the interest rate decision itself is whether the key phrase in the statement implying "the next move is more likely to be a rate cut" will be removed. According to Timiraos, this phrasing has been retained in the statement since the end of last year, but in the last two meetings, a few officials have advocated for its removal - once removed, it means that the possibility of rate cuts and hikes is seen as equal.

The logic of those advocating for removal is clear: The trend of inflation is going in the opposite direction, and impacts are piling up, making it increasingly difficult to predict when it will return to 2%; the labor market remains robust, and stock prices have rebounded to historical highs, all of which is inconsistent with a committee that still implies rate cuts are on the horizon.

However, the mainstream view within the committee is that changing the language is too radical. Adjusting the phrasing itself would tighten financial conditions, constituting a hawkish move that officials may not yet be ready to take. Powell's ally, New York Fed Chairman Williams, clearly stated: "We are not in a position to send a strong forward guidance now."

Goldman Sachs economist David Mericle also预计, the statement may acknowledge improvements in the labor market and rising inflation data, but the overall policy guidance is expected to remain unchanged, with only one dissenting vote (Miran), consistent with March. Natixis Chief Economist Hodge believes the statement's language may be hawkish, mentioning improvements in the unemployment rate, but Powell is expected to emphasize the two-way risks in the labor market at the press conference.

Even if the statement language remains unchanged this time, Timiraos points out, officials still have indirect ways to convey policy directions - Powell's press conference tonight, officials' speeches in May, and the new economic forecasts at the June meeting are all signal windows.

The Hawkish Faction Continues to Grow

Looking at the March dot plot, the FOMC's median forecast for the end of 2026 interest rates remains unchanged, suggesting only one rate cut this year. However, the positions of several members have undergone substantial shifts.

The most typical is Fed Governor Waller. He once strongly supported the three rate cuts last year on the grounds of concern for the labor market and has now shifted focus entirely to being vigilant about inflation. He cited the lessons of the 1970s - when officials repeatedly treated shocks as "transient" and failed to respond, allowing inflation expectations to subtly become unmoored. Waller warned that we must be vigilant about this series of episodic shocks. We have always said that the goal is 2%, and five years have passed, and inflation has never truly returned to that level. When will people start questioning your commitment?

In addition to Waller, Governor Lisa Cook and Michael Barr have also recently shifted their focus to the inflationary risks caused by the Middle East conflict.

New York Fed Chairman Williams directly denied the possibility of rate cuts within the year, stating that, under current circumstances, such a scenario simply does not exist. If there is any movement in inflation, it is going upwards. He characterized the Federal Reserve's current stance as a proactive choice rather than a passive adherence.

J.P. Morgan's latest view expects the Federal Reserve to maintain interest rates unchanged throughout the year, with the next move possibly being a 25 basis point rate hike in the third quarter of 2027.

Energy Shock: The Fourth Supply Shock in Five Years

Timiraos places the current situation in a broader perspective, with Federal Reserve officials closely observing how the U.S. economy digests the fourth supply shock in five years - pandemic reopening, Russia-Ukraine conflict, tariff turmoil, and Iran war. Each shock can be interpreted as an isolated event that does not require policy response, but the cumulative effect has made officials tread carefully.

Although the Iran war has announced a cease-fire, the Strait of Hormuz remains effectively closed to most shipping. Crude oil prices hover around $100 a barrel, with U.S. average gasoline prices soaring to about $4.18 a gallon, and aviation fuel prices also surge in tandem. March