With President Trump\u2019s focus squarely on Iran at present, Jerome Powell and the U.S. Federal Reserve are getting some respite from the Oval Office\u2019s attention. It\u2019s a couple of weeks until the next Federal Open Market Committee (FOMC) meeting, but investors already appear to be convinced what the group\u2019s next move will be.<\/p>\n
The base interest rate is, at present, between 3.5% and 3.75% and investors are pricing a more than 97% chance that it will stay there the next meeting, on April 28, per CME\u2019s FedWatch monitor.<\/a><\/p>\n Furthermore, it seems that the rate cuts the likes of President Trump and Treasury Secretary Scott Bessent have been requesting are out of the picture entirely at the next meeting, as far as traders are concerned: The remaining 2.6% are pricing in a hike of 25 basis points.<\/p>\n The odds of a Fed hold firmed up in traders\u2019 minds following Friday\u2019s inflation data<\/a>, which showed prices rose 3.3% over the past 12 months, with gas prices playing a major part in the increase.<\/p>\n This rise stems from the Iran conflict: Oil prices have increased because Iran borders the Strait of Hormuz, a narrow waterway in the Persian Gulf through which exports from the UAE, Qatar, Kuwait, and Iraq all flow. Some 20 million barrels of oil typically flowed through the strait every day, about 20% of global supply. Iran has made it clear it controls the strait and said it has littered the area with mines. Ship captains are too nervous to enter the waterway, choking off supply and sending prices spiraling.<\/p>\n Over the weekend, hopes that relations between Iran and the U.S. might improve were dashed: Vice President JD Vance said following peace talks, Iran had chosen \u201cnot to accept\u201d the offered terms. Halting Iran from securing a nuclear weapon is reportedly a key sticking point in the negotiations.<\/p>\n The expectation of a permanent deal being reached sooner rather than later fell sharply on Polymarket overnight<\/a>. Most traders still in the bet are of the opinion that a deal will be reached by June 30, though odds of an agreement at any point are falling across the board.<\/p>\n With no concrete end in sight for when oil supply might normalize, traders are settling into the idea that the Fed will be unlikely to move. After all, inflation is now moving in the opposite direction to the Fed\u2019s mandated 2% target. <\/p>\n For the Fed to cut, adding more liquidity to the economy while prices are already elevated would be highly unusual\u2014but might be justified if another element of the Fed\u2019s mandate demanded it. Maintaining employment is another role of the Fed, and here there\u2019s been some good news.<\/p>\n The U.S. Bureau of Labor Statistics reported earlier this month that nonfarm payroll employment increased in March, up 178,000, and the employment rate held steady at 4.3%.<\/p>\n This is another boon to the argument for a hold, as the labor market is showing potential for strengthening without any intervention on the base rate.<\/p>\n Early days<\/p>\n Despite that, sentiment and volatility is shifting fast at the moment\u2014a hallmark of the second Trump administration. For all the conviction for a hold today, those bets could unwind tomorrow based on a nod from the White House or a speech from a central banker.<\/p>\n Some might argue that this Fedwatching actually undermines the job of the central bank, the third part of its mandate being<\/a> \u201cmoderate long-term interest rates,\u201d in order to ensure stability of expectations for monetary policy. <\/p>\n