Fed Wrap – Split Fed see economic uncertainty

During this episode of Fed wrap we will discuss the outcomes of the April Fed meeting, what the split votes and dissents mean for decision making moving forward, and what that market should expect from Kevin Warsh as the next Fed Chair. 

At the April meeting, the Federal Reserve held rates, maintaining the upper band of their policy rate at 3.75%, with one dissent in favor of a cut.  There were 3 additional dissents in favor of removing any easing bias from the statement, but those members still voted in favor of holding rates steady.   

The statement highlighted that the US economy has continued to expand at a solid pace and that unemployment has remained low.  The two biggest changes from the last meeting were that the Fed see inflation as elevated and that the conflict in the middle east creates a lot of uncertainty for the economic outlook.  In what is likely Jerome Powell’s final meeting as Fed Chair, the Fed appeared split over positioning and policy action.   

This is a difficult position for the Fed to be in as it approaches a leadership change likely to occur ahead of the June meeting. 

During the press conference, Powell focused much of his economic commentary on the state of inflation.  While he avoided saying the word transitory, he pointed to much of the current and expected inflation issues as temporary.  Powell mentioned that core PCE was 3.2% over the past year through March with much of the upward pressure coming from the tariff passthrough on goods.  

Additionally, he commented that the inflationary impacts from elevated oil prices are not expected to persist beyond the short-term.  These two examples were part of his response when questioned regarding the Fed maintaining some level of an easing bias.   

The Fed will be watching how inflation evolves over the next few months but also expects that persistent elevated oil prices could begin to weigh on economic growth which would support further easing. 

On balance, this meeting was still slightly hawkish despite the Fed maintaining its easing bias and with the comments suggesting that the risks caused by the conflict in the Middle East would increase economic uncertainty.  While the elevated risks in the market will still be relevant at the June meeting, investors will also have to focus on what the Fed will look like under the new leadership of Kevin Warsh.   

Warsh has been outspoken about reducing forward guidance, changing the measurement of key economic indicators such as inflation, and decreasing the use of the balance sheet to hold treasuries.   

The market currently has no rate adjustments priced in 2026 and is pricing a 40% chance of a hike by April 2027.