The interest rate decision is more nervous for the market! The transfer of power in the Federal Reserve is in the final countdown, and the biggest suspense is whether Powell will stay or go.

Uncertainty surrounding the US economic growth outlook and the highest-level leadership transition at the Federal Reserve are shrouding this week's monetary policy meeting. Economists generally expect that Fed policymakers will announce after the interest rate meeting on Wednesday (early Thursday Beijing time) that they will maintain interest rates. Compared to the final interest rate decision, the market seems more focused on the fate of current Fed Chairman Powell. Some economists believe that the Fed may adopt a similar "hawkish pause" policy statement tone as the Bank of Japan on Tuesday, meaning that overall policy signals will not lean dovish, but rather convey a neutral, slightly tighter monetary policy signal with clearer hawkish policy path in the future. The Iran war has led to an increase in energy prices and disrupted global core supply chains, significantly increasing the possibility of inflation strengthening and economic growth weakening. This has prompted global central bank policymakers to signal that they are currently satisfied with adopting a wait-and-see approach. Economists generally agree that the Federal Open Market Committee (FOMC) of the Federal Reserve is likely to maintain the benchmark interest rate in the range of 3.5% to 3.75% over the course of three consecutive monetary policy meetings. Interest rate futures traders seem to believe that the Fed will cut rates once before the end of the year, with current market pricing showing an expectation of a 25 basis point rate cut by the December Fed meeting. Interest rate cuts are typically seen as significantly reducing short-term yields and helping to widen the yield curve between short-term and long-term yields - that is, the difference between 10-year and 30-year Treasury bond yields, thereby steepening the yield curve. At what may be Powell's final press conference as Fed chairman, investors will actively look for clues to determine how long they are willing to maintain a patient stance on monetary policy. Will there be a political plot twist? Interest rate suspense takes a back seat, with the market focusing on whether Powell will stay on the board Moreover, what is perhaps more intriguing is how Powell will discuss his future at the Fed. The current chairman has hinted that after his term ends on May 15, he may continue as a member of the Fed board, even emphasizing that he will continue to serve if necessary, acting as an "acting chairman". At the press conference following the last interest rate decision, Powell stated that he has no plans to resign from the board until a review initiated by President Trump is completed and the process is transparent and the conclusion is clear. If a successor has not been confirmed by the end of his term as chairman, he will continue to serve as acting chairman in accordance with the law until a new chairman is officially in place, to ensure that the Fed's operations and independence are not politically interfered with. Powell's decision to stay or leave and the possibility of Warsh's appointment make this meeting significant in terms of institutional transition. Warsh has expressed his desire to bring about "institutional change" at the Fed, advocating for a reduction in the balance sheet and adjustment of policy frameworks; however, there are still many inflation hawks within the FOMC who do not agree with a rapid rate cut. Therefore, if Powell continues as a member after his term as chairman ends, there will be stronger continuity in Fed policy; if he leaves, Warsh will have more room to reshape the committee's communication framework more quickly. For the market, this means that this week's meeting is not just about maintaining the interest rate, but rather the starting point for the Fed's reaction function to be recalibrated in the post-Powell era. Federal Reserve policymakers will release a policy statement after the press conference at 2pm ET on Wednesday, with a press conference featuring Powell taking place 30 minutes later. Given President Trump's continued pressure on the Fed to cut rates significantly, Powell is likely to be asked how recent political developments will affect his decision to stay or leave the Fed. At the same time, Kevin Warsh, Trump's nominee for the next Fed Chairman, has vowed to bring about "institutional change" at the Fed, a topic that is closely watched. If Warsh were to push for continued rate cuts under pressure from Trump in the future, Powell choosing to remain on the Fed board and his colleagues on the FOMC who have historically followed Powell's stance would likely face significant policy differences with Warsh and other "Trump-appointed officials". Analysts from Wall Street investment firm Evercore ISI recently wrote in a research report about Warsh and Powell: "The question is how quickly Warsh can change the Fed's policy framework." "This will largely depend on the speed at which the politically inclined Fed Board and FOMC members - including Powell if he steps down from the board after his term as chairman ends in May - are replaced," they added. In a major turnaround, US Senator Thom Tillis said on Sunday that he would vote to push Warsh's nomination forward to the Senate Banking Committee, paving the way for his confirmation. Tillis abandoned his commitment to block the nomination after the Justice Department announced the end of an investigation and allegations against Powell and the Fed; this investigation involved a $25 billion renovation project at the Fed headquarters. Tillis and other lawmakers criticized the investigation as politically motivated. Powell's term as a board member will continue until January 2028. He has stated that he will not choose to leave until the investigation is "truly and thoroughly completed and has transparency and finality." It is currently unclear whether the Justice Department has met these criteria. Upon announcing the end of the investigation, US Attorney for the District of Columbia Jeanine Pirro said that she had asked the Fed's internal watchdog to continue reviewing the construction project. She also promised to restart the criminal investigation if necessary. The wording of the statement will be crucial Fed watchers generally expect that policymakers will not make significant changes to the March statement, but point out that there may be some subtle adjustments in terms of wording that are crucial for market rate cut expectations. For example, some economists suggest that policymakers may adjust the description of the labor market to acknowledge recent data showing that despite weak hiring by US businesses, the labor market has shown signs of stabilization. Some policymakers also hope that more Fed FOMC members will explicitly state that the next policy action may be a rate hike rather than a cut, as the intensification of Middle East geopolitical conflicts has exacerbated existing inflation pressures. To signal this sentiment, policymakers may adjust related wording, that is, describing how they are considering "additional adjustments to the benchmark rate or the Fed balance sheet." Economists at Deutsche Bank wrote in a report, "A hawkish version of this statement may remove the word 'additional' as that word implies a series of further rate cuts, thus reflecting a dovish policy bias." The Fed announced three rate cuts at the end of 2025 and the wording at the time mentioned "additional." Stephen Miran, a Fed board nominee appointed by Trump, may oppose the majority decision, as he has done at every meeting since joining the Fed in September last year. This may also be Miran's final policy meeting, as Warsh has been nominated to fill his seat. Nick Timiraos, a well-known financial journalist dubbed as the "New Fed News Agency", wrote before the April FOMC interest rate meeting that the core suspense of this FOMC is not "whether there will be a rate cut", but whether the rate cut path will be temporarily postponed due to war and oil shocks, or whether it has been shelved. The Iran war has pushed up energy prices and disrupted supply chains, forcing the Fed to confront a combination of "stickier inflation and weaker growth." A recent survey of economists also showed that some economists have pushed back rate cut expectations to later in 2026 due to inflation risks related to the war, and more people are starting to believe that there may not be a rate cut this year. The real policy divergence lies in whether the Fed should still retain an implicit bias towards "the next move is more likely to be a rate cut." The wording in several past statements still carries the shadow of a continued rate cut cycle, but inflation has not truly returned to 2% in five years, and oil shocks have made officials concerned about making the same mistake as in the 1970s by misjudging consecutive supply shocks as temporary. The logic of Powell, Williams, and others is that the labor market has not collapsed significantly, the stock market has returned to high levels, and if inflation heads back up, continuing to hint at rate cuts will weaken the Fed's inflation credibility. Therefore, whether the statement deletes or downplays dovish language like "additional adjustments" may have a greater impact on market pricing than maintaining the interest rate itself. However, the FOMC committee is also reluctant to send a strong signal of "the next move may be a rate hike", as this would immediately tighten financial conditions, push up yields, and impact risk assets. The more likely path is to stay put this week, make only mild adjustments to the statement, with Powell emphasizing "data dependency" and "patience", and then gradually recalibrate the policy path through officials' speeches in May and economic forecasts in June. In other words, the Fed is transitioning from "rate cuts are just a matter of time" to "rate cuts must re-earn data permission"; this means that short-term rate cut pricing is under pressure for US Treasuries, and high-valued tech stocks will continue to face higher real interest rates and stricter profit realization requirements.