「Fed Watch」: Intense Internal Debate at the Fed Puts Dovish Tone at Risk

April 28 — The Federal Reserve’s two-day policy meeting wraps early Thursday Beijing time, marking Fed Chair Jerome Powell’s last meeting in the role. Markets widely expect the central bank to hold its benchmark interest rate steady at 3.5%-3.75%, but the key question is whether policymakers will signal rate cuts are off the table or merely delayed. Stagflation risks have reignited amid an Iran war energy shock and multiple supply disruptions — the U.S.’s fourth supply shock in five years (following the pandemic economic restart, Russia-Ukraine conflict, trade war, and current Middle East hostilities). Fed Governor Christopher Waller, who previously backed three 2023 rate cuts over labor market concerns, has shifted focus to inflation risks this month. Even with the Iran war ceasefire, the Strait of Hormuz remains partially blocked, driving up jet fuel prices. Fed officials project inflation will take at least a year to return to the 2% target. Wall Street Journal reporter Nick Timiraos (dubbed the “Fed Whisperer”) notes the committee’s top near-term issue is whether to amend its official statement. Since late 2023, the statement has said the “next policy move is more likely a rate cut than a hike.” A handful of officials have pushed to remove that line in the past two meetings to signal equal cut and hike odds, but the committee’s mainstream view calls the adjustment too aggressive: Formal wording changes would tighten financial conditions — a hawkish step officials aren’t ready to take. The panel will revisit the debate this week. Reported by Nick Timiraos (The Wall Street Journal) via Golden Finance.