The US central bank is widely expected to keep interest rates unchanged at its policy meeting next week, as energy prices remain high and supply chains are snarled due to the ongoing conflict in the Middle East. “We still have a very high level of uncertainty on what’s happening in the Middle East,” KPMG senior economist Kenneth Kim told AFP. Oil and gasoline prices remain elevated, even if they have peaked, meaning “there’s certainly an energy shock that’s still impacting both consumers and businesses,” he added.

Washington: The US central bank is widely expected to keep interest rates unchanged at its policy meeting next week, as energy prices stay high and supply chains are snarled due to war in the Middle East.

The Federal Reserve’s two-day meeting, commencing Tuesday, could mark chairman Jerome Powell’s final tenure at the helm of the independent institution. However, it unfolds against a challenging backdrop. Powell’s potential successor has faced a difficult path to confirmation, while policymakers grapple with conflicting pressures as rising fuel prices fuel inflation and job market concerns persist.

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Fed officials are anticipated to maintain rates steady at a range between 3.50 percent and 3.75 percent, extending their pause since the beginning of the year.

“We still have a very high level of uncertainty on what’s happening in the Middle East,” KPMG senior economist Kenneth Kim reiterated to AFP.

Oil and gasoline prices remain elevated even if they have peaked, meaning “there’s certainly an energy shock that’s still impacting both consumers and businesses,” he said.

The Fed operates under a dual mandate: maintaining price stability and low unemployment. It typically keeps interest rates high to curb inflation or lowers them to stimulate growth, indicating that current conditions are pulling officials in different directions.

Navy Federal Credit Union Chief Economist Heather Long expects Powell to be “non-committal” regarding the future path of rates, as the full impact from the war on Iran remains unknown.

The oil price hikes followed US-Israeli strikes targeting Iran from February 28, which sparked Tehran’s retaliation, virtually closing the Strait of Hormuz – a crucial waterway for energy transit.

Containing Inflation

Fed officials will likely prioritize containing inflation over concerns about the jobs market during this meeting, as the war enters its ninth week.

The strait is also a vital passage for fertilizers, and disruptions there threaten to impact global food production.

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Already, US consumer inflation reached its highest level in nearly two years in March at 3.3 percent, driven by rocketing energy costs.

Fed Governor Christopher Waller, who previously advocated for lower rates to support employment, indicated this month that a prolonged conflict could make it difficult for the central bank to cut rates this year.

He noted that if there were both high inflation and a weak labor market, one would have to balance risks on both sides.

This “may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market,” he stated at an event in Alabama.

KPMG’s Kim suggested that recent solid hiring “gives the Fed some cushion” to temporarily focus more on prices.

Analysts will closely monitor whether the Fed’s post-meeting statement signals the possibility of future rate hikes.

‘Critical Juncture’

The Fed is also navigating its next steps under intense political scrutiny.

President Donald Trump has openly expressed his desire for lower interest rates and has regularly criticized Powell for not cutting them more aggressively.

Beyond rhetoric, Trump has sought to remove Fed Governor Lisa Cook over allegations of mortgage fraud. The Supreme Court is poised to rule on his authority to dismiss her.

Meanwhile, Trump’s preferred candidate for the new Fed chairman – Kevin Warsh – has faced a challenging path to confirmation.

Republican Senator Thom Tillis, a member of the Senate Banking Committee, has vowed to block Fed appointments until a Justice Department probe into the Fed and Powell is resolved, potentially creating an impasse for Warsh’s confirmation panel.

However, the Department of Justice announced Friday that it would drop the investigation linked to renovation cost overruns, potentially clearing the way for Warsh’s ascent.

When questioned by journalists on Saturday about the DOJ’s decision, Trump stated he still intends to investigate the cost of the Federal Reserve building renovations, which he claims are excessively high.

“I tell you, I want to find out. I have an obligation to find out,” he asserted.

Warsh has repeatedly pledged to maintain independence if confirmed.

“We’re at a critical juncture for the Fed,” EY-Parthenon chief economist Gregory Daco told AFP.

“It may be that under Warsh, we’re going to see less Fed transparency, less Fed communication than we had in the past,” he commented, referring to Warsh’s confirmation hearing testimony.

Powell’s term as chairman expires May 15, and he initially intended to remain on the Fed’s board of governors until the probe concerning him is completed.

All eyes are on his future plans at his scheduled press briefing on Wednesday.