The Fed kept rates on hold Wednesday, as expected, amid ongoing uncertainty around the war and lingering concerns that physical shortages stemming from dueling blockades in the Strait of Hormuz will eventually manifest in price shocks, margin contraction or both.

This week’s policy gathering was Jerome Powell’s last as Fed chair and had the potential to be his last FOMC meeting.

Powell indicated in March he wouldn’t make a decision on whether to leave the board altogether until he’s satisfied the Trump administration’s investigation into a costly renovation project at the Fed’s D.C. headquarters is “well and truly over with transparency and finality.”

Jeanine Pirro begrudgingly dropped the Justice Department’s criminal probe last week in order to clear the way for Kevin Warsh’s nomination in the Senate, but warned she’s prepared to resume the investigation in the event the results of an internal Fed review merit charges.

Powell later said he intends to stay on the board indefinitely thereby denying, for now, Donald Trump another vacant seat to fill.

To the casual observer, the new Fed statement might appear mostly identical to the language employed in March. But there were a few subtle tweaks and they were all meaningful:

• The Committee reiterated that job gains “have remained low,” but added “on average,” a nod to firmer reported payrolls growth in March.
• The inflation evaluation dropped the “somewhat” modifier in favor of plain old “elevated.” Above-target inflation reflects, “in part,” the war-driven jump in energy prices.
• The language around the conflict with Iran carried a more urgent tone. The war, the Fed said, is “contributing to a high level of uncertainty about the economic outlook.”

Naturally, Stephen Miran dissented in favor of a quarter-point cut. That wasn’t a surprise. But in an interesting twist, the statement noted that Hammack, Kashkari and Logan wanted to drop the implicit easing bias in the forward guidance.

Until now, the Fed hasn’t formally acknowledged that their by-now-familiar language around the outlook for rates indeed referred to cuts, although it was self-evident. Discomfort with that bias across Hammack, Kashkari and Logan (presaged by the March meeting minutes, I should add) suggests Warsh will face dissents early and often if he pushes for cuts while inflation’s still elevated.

Although the surge in gas prices pushed up headline inflation in March, underlying price growth was surprisingly tame, and the same was true of producer prices. Consumer spending, meanwhile, held up last month even as households grappled with a record surge in pump prices.

Headed into Wednesday’s policy decision, market pricing for the Fed trajectory reflected no cuts for 2026.

The figure above, updated through noon on April 29, shows you the impact of the war and the extent to which markets have faded the hawkish extremes seen in March when, at one juncture, traders saw better-than-even odds of a Fed hike by year-end.

“The key question remains whether rate cuts have been completely taken off the table, or simply delayed for a few meetings until the Committee has a better understanding of the ramifications of the war,” BMO’s Ian Lyngen remarked.

“There is an argument to be made that the real economy has held up well, all things considered, and the Fed’s focus should remain on the moderating core inflation figures,” Lyngen went on, before suggesting the risk “presented by the war [to] forward inflation expectations” should elicit some sympathy for “the Committee’s stance that it is too soon to estimate the fallout.”

Of course, much hinges on Warsh’s willingness and capacity to resist pressure from the White House to resume rate cuts right out of the gate in June.

In an interview with CNBC last week, Trump said he’d be “disappointed” in Warsh if he doesn’t commence cuts immediately.