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Highlights
Between acknowledgement that the breakeven pace of job growth has fallen to zero and the Iran war, Fed doves have moved toward hawks and delayed any expectations of rate cuts until later this year. While Fed hawks might see the case for two-sided risks to policy rates, doves still see the risks as one sided. We don’t see Fed doves as willing to seriously consider risks as two-sided until they see a more durable turn in the labor market. While we see the possibility for such a turn, it’s not yet evident in the top line data in a way that would be convincing to Fed doves.
Wall Street Journal 4/29/26
Fed Chair Jerome Powell tells reporters that given the high uncertainty surrounding the conflict in the Middle East, the central bank is well positioned to wait when it comes to monetary policy. “We think our policy rate is in a good place,” said Powell. “Nobody’s calling for a hike right now-it’s really going to depend on how things evolve.”
“The labor market is probably cooling off a little bit,” he noted.
Monday Morning Notes, 4/27/26
If You Don’t Have Time This Morning
Powell will likely stay at the Fed as governor for at least some after his term as Chair ends.Journalists will press Powell to disclose plans for when his time as Chair ends next month. Tillis will drop his blockade against Warsh’s nomination, allowing Warsh to ascend to the helm of the Fed. Although Tillis sees the investigation as “fully and completely ended,” he also acknowledged that Powell may want to stay until the DOJ at least finishes the appeal process, seemingly an implicit acknowledgement that Powell will stay. Powell could also choose to wait until the Fed’s inspector general completes its report.
New York Times 4/29/26
Jerome H. Powell cited lingering legal threats against him and the Federal Reserve in explaining his decision to remain at the central bank.
Jerome H. Powell said on Wednesday that he would stay on as a governor at the Federal Reserve after his term as chair ends May 15,citing lingering legal threats against him and the central bank as part of a pressure campaign by President Trump for lower borrowing costs.
“After my term as chair ends on May 15, I will continue to serve as a governor for a period of time to be determined,” Mr. Powell said at a news conference on Wednesday.
Mr. Powell pointed to the legal attacks on the Fed as the reason for his decision.
Final Thoughts Ahead of the FOMC
We have been anticipating that the Fed will not update the FOMC statement language tomorrow to eliminate the suggestion that the next move is a rate cut, even though the growing sentiment among FOMC members is that the Fed won’t cut rates again this year. That still holds.
Bottom Line: Assuming the Fed retains its existing guidance, Powell will likely sound hawkish relative to that guidance and make clear that rate cuts are not being considered anytime soon. Note that by pushing through cuts last year, Powell reduced the scope for Warsh to cut rates further and, even worse for Warsh, if the Fed made a policy error by cutting rates last year, Powell set Warsh up to hike rates. Needless to say, such a turn of events wouldn’t please President Donald Trump.
Wall Street Journal — WASHINGTON — 4/29/26
Federal Reserve officials extended an interest-rate pause on Wednesday that revealed bigger divisions over whether to hint that further interest rate cuts are possible, marking a contentious conclusion to Jerome Powell’s eight-year chairmanship.
Officials held their benchmark federal-funds rate steady in a range of 3.5% to 3.75% and, in their policy statement, made no changes to language adopted last fall that signaled the next move in rates was more likely to be down than up.
Wall Street Journal 4/29/26
Wall Street traders are betting that there is a small chance that the Federal Reserve will raise interest rates this year, after central bank officials sent some hawkish signals on Wednesday.
Interest-rate futures showed Wednesday afternoon that traders see a 11% chance that the Fed will raise rates this year, according to CME Group data, up from 5% earlier in the day and zero percent on Tuesday. The chance of a rate cut was hovering around 2%.
The Fed on Wednesday maintained language in its policy statement suggesting that an interest-rate cut is more likely than a rate hike in the months ahead. However, three Fed presidents formally objected to that language, and Fed chair Jerome Powell indicated that it could be removed as soon as the next meeting, as inflation remains stubbornly high.
The Bank of Canada (BOC) is more likely to remain on hold this year than to deliver rate hikes, despite market pricing implying almost 50 basis points of tightening over the course of 2026.
To be fair to markets, that pricing reflects elevated oil-related risk premia and is, in part, a spillover effect from tighter global financial conditions.
But Canada’s domestic macroeconomic challenges have not materially changed so the bar for tightening is high. We expect the Bank to continue to push back against premature rate hike expectations.
Dow Jones – OTTAWA 4/29/26
The Bank of Canada on Wednesday kept its main interest rate unchanged at 2.25%, and signaled the rate may stay close to that level so long as the economy evolves as forecast.
The central bank’s quarterly forecast expects that inflation peaks in April at around 3% and assumes crude-oil prices fall to $75 a barrel by mid-2027. The forecast also anticipates no changes in U.S. tariffs on Canadian goods — so neither a breakthrough on U.S.-Canada trade talks nor an escalation in U.S. levies.
Overall, the Bank of Canada largely kept its growth forecast intact, noting the economy stands to benefit from current geopolitical volatility as a net exporter of crude oil. The economy resumed growth in early 2026 after a contraction in fourth quarter, the central bank said.
Araghchi maintained that given the Trump administration’s “complete lack of credibility” and the significant differences between Iran and the US on issues such as nuclear, the Strait of Hormuz, and reparations, the second round of talks is unlikely to yield substantial results. The only possible, and perhaps best-case, outcome is for both sides to extend the negotiation period again, perhaps for another two weeks. [Note — We are not sure if this would trigger another round of strikes by Trump, but suspect it will depend on the tenure of the negotiations].
Truth Social April 21, 2026
@realDonaldTrump
STATEMENT OF PRESIDENT DONALD J. TRUMP:
Based on the fact that the Government of Iran is seriously
fractured, not unexpectedly so and, upon the request of Field
Marshal Asim Munir, and Prime Minister Shehbaz Sharif, of
Pakistan, we have been asked to hold our Attack on the Country
of Iran until such time as their leaders and representatives can
come up with a unified proposal. I have therefore directed our
Military to continue the Blockade and, in all other respects,
remain ready and able, and will therefore extend the Ceasefire
until such time as their proposal is submitted, and discussions
are concluded, one way or the other. President DONALD J. TRUMP
The second important implication is that the dispute today over whether the cease-fire includes Israel’s attacks on Hezbollah in Lebanon, which have continued and led to Iran halting the passage of ships through Hormuz, may be in the rear-view mirror sooner rather than later, despite the hard anti-Israel rhetoric emanating today out of an emboldened leadership in Iran.
We are not sure how this is resolved but assume the massive step up overnight of Israeli attacks on Lebanon reflects a desire to create as much of a buffer space on the border before the US weighs in to curtail further strikes.
Bloomberg 4/9/26
President Trump called Benjamin Netanyahu yesterday and asked him to scale back Israel’s strikes in Lebanon to ensure the success of the Iran negotiations,NBC reports, citing an unidentified senior administration official.
- Israel agreed “to be a helpful partner,” the official tells NBC
@BarakRavid
Prime Minister Benjamin Netanyahu: In light of Lebanon’s repeated requests to open direct negotiations with Israel, I instructed yesterday to begin direct negotiations with Lebanon as soon as possible
The Fed finds itself in a policy bind of its own making, having misjudged both the resilience of the labor market and the persistence of inflation, errors compounded by cutting rates too aggressively in 2025. With the March jobs report showing continued labor market strength and inflation running well above target, rate cuts are effectively off the table for the foreseeable future, with SGH assigning a limited probability to a cut in 2026.
WASHINGTON (AP) 4/8/26
The number of Federal Reserve policymakers willing to consider an interest rate hike this year rose between the January and March meetings, as higher gas prices stemming from the Iran war threatened to worsen inflation in the coming months.
Minutes of the Fed’s March 17-18 meeting, released Wednesday, showed that “some” of the central bank’s 19 policymakers on its rate-setting committee supported changing their post-meeting statement to reflect the potential for a future rate hike. That is an an increase from “several” in January. The Fed doesn’t disclose precise numbers of how many officials supported each position, but in Fed jargon, ‘some’ is considered more than ‘several.’
And “many” of the officials pointed to the risk that higher oil and gas prices could keep inflation elevated for “longer than expected, which could call for rate increases” to push inflation back down.
As relayed from Beijing:
To prevent the ongoing US-Israel war against Iran from escalating into a regional war or even drawing in China, Russia, and European nations, Beijing and Moscow have recently engaged in intensive diplomatic consultations regarding the situation in the Middle East. China’s president Xi Jinping and Russia’s president Vladimir Putin have each, through special channels, attempted to persuade US President Donald Trump and Iran’s new Supreme Leader Mojtaba Khamenei to implement an immediate ceasefire and return to the negotiating table.
The strongest signals Xi and Putin sent to Trump and Khamenei were, respectively, do not launch a ground war against Iran, and do not close the Strait of Hormuz.
Bloomberg 4/8/26
A Chinese diplomat said Beijing had made its
“own efforts” in pushing for a ceasefire between the US and
Iran, shortly after Donald Trump credited China with playing a
pivotal role in that deal.
Chinese Foreign Ministry spokeswoman Mao Ning on Wednesday
listed the efforts her country had made in recent weeks to
deescalate the conflict at a regular briefing in Beijing,
without directly addressing reports China helped convince Tehran
to reach the truce.
“China has consistently advocated for a ceasefire and to
resolve the conflict through political and diplomatic means, and
to achieve long-term stability in the Gulf and Middle East
region,” she said, when asked about the detente. “China made its
own efforts in this regard.”
There is not yet convincing evidence that the labor market is deteriorating. Absent such deterioration, the Fed will be challenged to cut policy rates when inflation is running well above target year after year. That said, labor market data is neither unambiguously strong nor weak. On the “good news” side of the ledger is near-steady labor demand as measured by job openings, steady jobless claims indicating layoffs remain low, and ongoing wage growth above the pre-pandemic pace. On the “bad news” side of the ledger is weak and narrow job growth, a steady to slowly rising unemployment rate, a continued low job-finding rate, dour worker perceptions of the labor market, and an indication that payrolls last summer were overstated.
Bloomberg 4/7/26
US job growth rebounded in March and the unemployment rate unexpectedly fell, suggesting the labor market was stabilizing as the Iran war began.
Nonfarm payrolls rose 178,000 last month, the most since the end of 2024, after revisions showed a sharper decline in February, according to Bureau of Labor Statistics data out Friday. That was higher than all estimates in a Bloomberg survey.
The solid increase will likely reinforce the Federal Reserve’s focus on inflation risks amid a rapid run-up in energy prices sparked by the war in Iran.
The outsize increase in payrolls in March followed a revised 133,000 drop in the prior month, which marked one of the biggest declines since the pandemic. But on average, payrolls rose 68,000 in the first three months of this year, the strongest run in almost a year.