Fed expected to hold rates as Powell era nears end with Warsh on deck

• Powell's chairmanship ends May 15, though his Board of Governors term runs until January 2028, and he has not decided whether to remain as a governor after his chairmanship concludes
• Sen. Thom Tillis had vowed to block Warsh's confirmation until the DOJ investigation ended, viewing it as a threat to Fed independence; the case is now transferred to the Fed's inspector general
• Analysts suggest Powell may remain on the Board to provide 'institutional continuity' and serve as a 'stabilizing counterweight' during the transition to Warsh's leadership

Summary: Fed Rate Decision and Leadership Transition

Key Decision: The Federal Reserve is expected to hold interest rates steady at 3.5%-3.75% at Wednesday's Federal Open Market Committee (FOMC) meeting, amid elevated inflation concerns above the Fed's 2% target, exacerbated by the Iran war.

Leadership Transition: Fed Chair Jerome Powell will likely host his final news conference as chairman, with his term expiring May 15. However, his term as a Fed Board Governor extends until January 31, 2028. Former Fed Governor Kevin Warsh is positioned to become the next chairman, potentially by the Fed's mid-June meeting.

Investigation Resolved: The Department of Justice dropped its investigation into Powell's testimony regarding the Fed's costly renovation project on Friday. U.S. Attorney for D.C. announced the case will transfer to the Fed's inspector general, Michael Horowitz. This development cleared the path for Warsh's Senate confirmation after Senator Thom Tillis (R-NC) had threatened to block the nomination due to concerns about the "bogus" DOJ probe undermining Fed independence.

Market Implications: EY-Parthenon Chief Economist Gregory Daco expects Powell will "more likely than not" remain on the Board after his chairmanship ends, providing institutional continuity during the transition. Warsh's views on deregulation and AI-driven productivity as disinflationary factors could influence future policy direction.

Timeline: The next FOMC meeting after this week isn't scheduled until mid-June, after Powell's chairmanship concludes. Analysts anticipate policy framework continuity despite the leadership change, with Powell's potential Board presence serving as a "stabilizing counterweight" during Warsh's transition.