Confronted with the inflationary effects of the war in the Middle East, the Federal Reserve is expected to maintain its rates this week. A pivotal meeting, which could be the last chaired by Jerome Powell. He will likely be replaced by Kevin Warsh, after Republican Senator Thom Tillis announced on Sunday that he would support his nomination.
The pressure is mounting, but the US Federal Reserve is expected to remain unchanged. Meeting on Tuesday and Wednesday, its Federal Open Market Committee (FOMC) is not expected to change its key rates, which are held in a range of 3.50% to 3.75%, despite a resurgence of inflationary pressures.
“As there is no chance that the Fed will change its interest rates, our focus will mainly be on anything related to future monetary policy moves,” emphasizes Nancy Vanden Houten, economist at Oxford Economics.
An analysis widely shared by the markets, as evidenced by the FedWatch tool from the CME Group, which anticipates a monetary status quo at least until the end of the year.
The oil revives inflationary tensions
In the background, the war that broke out at the end of February against Iran, in coordination with Israel, is disrupting global economic balances. The closure of the Strait of Hormuz by Tehran – through which more than 20% of the world’s hydrocarbons pass – has caused a surge in oil prices, rising from around $65 per barrel before the crisis to nearly $95, with a peak above $110 at the beginning of April.
As a direct consequence, pump prices have jumped by over 15% in March, fueling inflation that could rise above 3% on an annual basis, far from the Fed’s target of 2%.
“There is a non-negligible possibility that the statement will acknowledge that a rate hike may be necessary if inflation remains durably above the target,” says Gregory Daco, chief economist at EY.
A meeting marked by uncertainty
The war has “increased uncertainty,” observes Nancy Vanden Houten. FOMC members could now attach more weight to inflation risks, to the detriment of the labor market, which has been at the heart of their concerns so far.
In this context, Jerome Powell’s press conference, scheduled for Wednesday at 2:30 PM (6:30 PM GMT), will be closely watched by investors.
A turning point at the head of the Fed
This meeting could mark the end of a cycle: Jerome Powell’s term at the head of the Fed is set to end in mid-May, before the next meeting in June.
Fact Check: The article discusses the Federal Reserve’s expected decision regarding interest rates in response to inflationary effects from the war in the Middle East. There is speculation about potential leadership changes at the Fed, including the possibility of Jerome Powell being replaced by Kevin Warsh.
