Interest rates are the most certain thing about FOMC meeting

• Key takeaway: The FOMC meets April 28-29 against a backdrop of elevated geopolitical uncertainty stemming from the Iran war, which has contributed to higher energy prices and renewed inflation concerns. The meeting also comes during a leadership transition at the Federal Reserve, with a new chair expected to take over in the coming months.
• Expert quote: "The Fed is likely to approach the coming quarters with a bias toward caution, balancing still-elevated inflation against a gradually softening growth backdrop." — Christopher Hodge, chief economist at Natixis Corporate & Investment Banking.
• What's at stake: As former Federal Reserve Gov. Kevin Warsh, President Donald Trump's pick to succeed Jerome Powell as Fed chair, moves closer to confirmation; he could face a difficult balancing act once in office. Inflation has shown renewed upward pressure, driven in part by higher energy prices tied to the Iran war, even as the White House continues to press for lower interest rates.

WASHINGTON — The Federal Reserve's rate-setting committee is expected to leave interest rates unchanged for a third consecutive meeting April 28-29, even as the ongoing Iran war fuels uncertainty about the economic outlook.

Markets have fully priced in a hold. The CME Group FedWatch tool shows a 100% probability that the federal funds rate will remain in a target range of 3.5% to 3.75%. 

The April meeting of the Federal Open Market Committee will also likely mark the last one led by Federal Reserve Chair Jerome Powell. His term as chair ends May 15, and President Trump's pick to replace him, former Fed Gov. Kevin Warsh, had his only obstacle to confirmation removed last week when Sen. Thom Tillis, R-N.C., said he would vote for Warsh after the Justice Department dropped its investigation into Powell last Friday.  

Since the start of the Iran war in late February, Fed officials have cautioned that a prolonged conflict could push inflation higher by raising the cost of fuel and transportation. 

In recent remarks, several policymakers, including Governors Lisa Cook, Michael Barr and Christopher Waller, have pointed to rising inflation risks tied to the Middle East conflict while acknowledging increased uncertainty in the labor market. Waller, who had focused on labor market weakness late last year, has recently shifted his attention toward inflation risks.

"For inflation, the risk is that the longer the conflict drags on and energy prices remain high, the more likely it is that these elevated prices will bleed into other prices, as businesses incorporate costly energy input costs in setting their prices," he said in a speech at Auburn University in mid-April.

The shift in tone among policymakers suggests interest rates are likely to remain steady in the near term. Christopher Hodge, chief economist at Natixis Corporate & Investment Banking, said that Powell at the post-FOMC press conference is expected to emphasize that current policy remains appropriate and that the Fed is positioned to respond to future shocks. 

"The official statement is likely to skew hawkish, noting the recent improvement in the unemployment rate, but we expect Powell to emphasize the two-sided risk to the labor market," said Hodge in a note. "The Fed is likely to approach the coming quarters with a bias toward caution, balancing still-elevated inflation against a gradually softening growth backdrop."

Hodge added that policymakers will focus on preventing energy-driven price increases from feeding into broader core inflation. Analysts also expect limited forward guidance on rate cuts, as geopolitical uncertainty complicates the policy outlook.

"Powell's presser will focus on uncertainty remaining high, while declining to provide much forward guidance except to refer to the Fed's inflation and employment mandates," predicted Derek Tang, CEO of Monetary Policy Analytics. 

Recent economic data highlights the challenge facing the central bank. The Bureau of Labor Statistics reported that consumer prices rose 0.9% in March and 3.3% from a year earlier, driven largely by higher energy costs. Core inflation, which excludes food and energy, continued to moderate, rising 0.2% in March for a second consecutive month and 2.6% over the past year. 

The labor market has shown mixed signals in recent months. Employers added 130,000 jobs in January, followed by a loss of 92,000 in February. In March, nonfarm payrolls rose 178,000, while the unemployment rate stood at 4.3%.

Vincent Reinhart, chief economist at BNY Investments, said the pace of job growth is a concern for policymakers, but that inflation fears are taking center stage.

"The slowness of employment growth and aggregate demand continuing to advance tells us something is happening in productivity," said Reinhart. "We don't think it's technology yet, but it will be. The open question is what the Fed does in an environment of higher energy prices."

The April presser is expected to be the last one headed by Powell, as expectations are building that Warsh will likely take office by the June FOMC meeting. Powell could remain on the Board of Governors, where his term runs through January 2028, but whether that happens is uncertain, Hodge said.

"Still in question is whether Powell stays as governor," Hodge said. "If he does, it would prevent the White House from filling that seat."

The Department of Justice said April 24 it would drop its investigation into Powell over renovation costs at the Fed's headquarters, a move that likely clears the way for a confirmation vote on Warsh. But not one that necessarily will convince Powell to leave the Fed all together.

Some market participants expect Warsh, once confirmed, to shift the tone of Fed communications, particularly around forward guidance.

"Warsh will be able to explain to his colleagues that where we have discretion on timing or interpretation, we should choose a path that minimizes the surface area of political confrontation," Reinhart said. "I think his more meaningful changes will be in FOMC communication."

At his confirmation hearing before the Senate Banking Committee, Warsh suggested that Fed officials are making too many statements on the forward path of interest rates. 

"Right now, press conferences are held periodically," Warsh said. "If you ask me my true personal opinion, right now, Fed chairs and other central bankers around the FOMC, they speak quite frequently. There is no lack of transparency. But I would say this, I think truth-seeking is more important than repetition." 

John Heltman contributed to this report.