Powell’s final dance? Middle East conflict pushes inflation higher; the Fed is expected to hold steady this week

This week, major global central banks will gradually release their interest-rate decisions, and the market expects the U.S. Federal Reserve (Fed) to keep rates unchanged. Recently, conflicts in the Middle East have escalated, particularly with transportation through the Strait of Hormuz being disrupted, putting upward pressure on global energy and raw-material prices. Central bank decision-makers around the world are closely watching whether rising energy costs will further push inflation higher and are taking a cautious stance of waiting and observing. In the United States, the upcoming Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) price index are expected to reflect economic resilience and underlying concerns about inflation. In addition, this rate meeting may be Chair Jerome Powell’s last time presiding over the Fed; the subsequent personnel handover is also a key focus for the market.

Middle East geopolitics and global inflation pressure

Recent military conflicts in the Iran region have continued, with peace negotiations stuck in a stalemate, creating a significant impact on the global overall economy. In particular, the effective closure of the Strait of Hormuz—which serves as a key chokepoint for global energy transport—has sharply reduced exports of oil and critical manufacturing inputs from the region. This geopolitical event directly led to higher crude oil prices and increased production input costs, bringing new challenges to global supply chains. Major central banks are currently closely observing this energy shock to assess its potential threat to long-term price stability, ensuring that monetary policy can respond in a timely manner and avoiding a repeat of situations in the past where the response to inflation pressure came too late.

U.S. economic data and Fed policy outlook

On the domestic economic front in the U.S., the first-quarter Gross Domestic Product (GDP) expected to be released on Thursday is projected to show an annualized growth rate of 2.2%, indicating that the economy has recovered from the government shutdown at the end of last year. However, behind strong business investment, inflation pressure is also heating up at the same time. Markets expect the Personal Consumption Expenditures (PCE) price index—which the Fed places great emphasis on—to accelerate, reaching the fastest growth rate since 2023. Against the dual backdrop of a resilient job market and the possibility that inflation may rise further due to the war, markets broadly expect the Fed to keep interest rates at the current level unchanged in this week’s decision meeting and to adopt a wait-and-see strategy.

According to the CME FedWatch index, traders are 100% certain that the Fed will keep rates unchanged this week, and there is less than a 30% chance of rate cuts this year.

Powell’s last dance? Fed chair handover and future personnel arrangements

In addition to the direction of monetary policy, changes in personnel at the Fed’s top leadership are also a major focus for financial markets. This week’s policy meeting is highly likely to be the last meeting during current Chair Powell’s term. With the U.S. Department of Justice ending its investigation into alleged budget overruns for the Fed’s building renovation, Senator Thom Tillis has announced that he will drop his hold on the nomination of the incoming chair. This development has removed the main hurdles in the confirmation process for the Fed chair nominee Kevin Warsh, put forward by U.S. President Donald Trump, and is expected to subject the upcoming monetary policy transition period to close scrutiny by the market.

(DOJ撤銷對 Fed 主席 Powell 的刑事調查：Warsh 任命路徑全面打通、美債殖利率立即下跌)

This article 鮑威爾最後一舞？中東衝突推升通膨，聯準會本週估按兵不動 was first published on 鏈新聞 ABMedia.