The Federal Reserve’s Federal Open Market Committee (FOMC), which sets interest rates, will hold its third meeting of the year this week (it meets eight times a year).
As usual, this will be a two-day meeting, and the Fed will issue its monetary policy statement and announce any change to interest rates on Wednesday, 2 p.m. ET.
Investors expecting the Fed to announce an interest rate cut will likely be disappointed, however. The Fed is very good at so-called “forward guidance” – i.e., telegraphing to markets what it will do in advance. And right now, futures traders are pricing in a 100% chance that the FOMC will not cut (or raise) its target interest rate at this week’s meeting.
In fact, the futures market is pricing in a 65% chance that the Fed’s target rate will remain where it is through the end of 2026.
That said, the FOMC meeting is still likely to convey information that’s important and relevant to investors.
Investors should pay attention to the post-meeting press conference
The statement the FOMC releases probably won’t say a whole lot, however, beyond the Fed’s very general view of the economy and inflation, and the fact that it’s holding the federal funds rate at its current level.
It’s the press conference with Fed Chair Jerome Powell, which takes place about 30 minutes after the statement is released, that should be interesting.
Markets will be listening closely for Powell’s take on elevated inflation. Consumer prices rose 3.3% over the 12 months ending March 2026. That’s far above the Fed’s 2% inflation target. Meanwhile, the U.S. economy added 178,000 new jobs in March — more than expected — and the unemployment rate remains low at 4.3%.
The Fed needs to balance keeping inflation under control while making sure the labor market remains healthy. Right now, inflation appears to be the bigger concern. If Powell indicates that he agrees with that assessment, markets could be looking at a rate hike later this year. And higher interest rates tend to sent the stock market lower, at least in the short term, as they increase borrowing costs and reduce corporate earnings.
Powell will also likely need to address rising bond yields. The yield on the 10-year Treasury is now about 4.3%, far above the 3.9% it stood at just before the war in the Middle East began. Many other interest rates, including mortgage rates, move with that yield, so when it rises, borrowing costs for consumers rise as well.
And of course, Powell will have to give his take on how the spike in energy prices due to the war might affect inflation going forward, and how the Fed might respond. Brent crude, the international benchmark, is currently trading above $108 a barrel, 50% above its pre-war price. And the national average price of a gallon of gasoline is around $4.04, more than $1 higher than it was before the war started. Even if the war ends soon, energy prices are expected to remain high for months.
All that said, this week’s FOMC meeting is expected to be the last one led by Powell. When the Justice Department closed its investigation into the Fed’s building renovation last week, that cleared the way for the Senate to confirm President Trump’s nominee to replace him, Kevin Warsh, this month.
While Warsh is not expected to embrace rate cuts right away, his nomination by Trump, who has been calling for cuts, indicates he’s more disposed to lead the Fed toward lower interest rates later this year, if inflation and the labor market allow it.
Image source: Getty Images.
