Deutsche Bank: Fed Set to Stay on Hold, With Risks of a More Hawkish Tone - FJElite

With policy still seen as “well positioned” to deal with risks to the outlook, the Fed is expected to extend its pause at the April FOMC meeting. The main issue is not the rate decision itself, but whether the Fed starts to frame the outlook in more clearly two-sided terms in the statement or whether Powell signals a more balanced risk assessment in the press conference. The base case is still that any meaningful change in guidance waits until June, though the risk is that communication leans more hawkish before then.

Only limited changes are expected in the post-meeting statement. Recent data still fit the Fed’s current description of growth as solid, job gains as low, unemployment as little changed, and inflation as somewhat elevated. Any hawkish shift would more likely come through subtle language changes, such as adjusting the reference to “additional adjustments” or describing risks to the dual mandate as broadly balanced rather than tilted in one direction.

Powell’s press conference is likely to focus heavily on the economic effects of the Middle East conflict. The message is expected to be that uncertainty remains very high and that the Fed still does not know exactly how the war will feed through to growth, inflation, and policy. At the same time, Powell may stress that the longer oil prices stay elevated, the greater the risk that price pressures become more persistent.