GOOD MORNING. |
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THE LEAD |
This afternoon at 2:00 p.m. Eastern, the Federal Reserve will announce its latest interest rate decision. There is almost no suspense about the outcome. Markets are pricing in a 100% probability that the Fed holds its benchmark rate right where it has been all year, in a range of 3.50% to 3.75%. This would be the third consecutive meeting with no change. |
But today is bigger than the rate decision itself. |
This is almost certainly Jerome Powell's last meeting as Federal Reserve chairman. His term as chair expires on May 15. Kevin Warsh, President Trump's nominee to replace him, is expected to clear a Senate Banking Committee confirmation vote this morning and be confirmed by the full Senate before Powell's term ends. That means the next Fed meeting in June is likely to be Warsh's first at the helm. |
So why does this matter to you and your money? |
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Because the Federal Reserve has enormous influence over your financial life. It sets the interest rate that ripples out to your savings accounts, money market funds, CDs, and bonds. It shapes borrowing costs that affect the businesses you hold in retirement accounts. And right now, it is navigating one of the more complicated economic moments in years. |
Inflation is heading the wrong way. The Consumer Price Index jumped to 3.3% in March, up sharply from 2.4% in February. That is the highest reading since May 2024, and it came at a time when most people hoped prices were finally settling down. The driver is energy. The U.S.-Iran war, now in its ninth week, has reduced shipping traffic through the Strait of Hormuz to a near-standstill. That waterway normally handles roughly one in five barrels of oil moving through global markets. The International Energy Agency has called the resulting supply disruption the largest in the history of global oil markets. Oil is pressing toward $100 a barrel, and the national average for gasoline is now around $4.18 per gallon. That is showing up in your grocery bill, your heating costs, and the general cost of running your household. |
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The Fed's job is to keep inflation near 2%. It is well above that today, and rising energy costs make the path back uncertain. Cutting rates now would risk making inflation worse. Raising rates risks slowing the economy at a fragile moment. So the Fed is staying patient. |
What to watch closely this afternoon is not the rate decision but how Powell frames the risks at his 2:30 p.m. press conference. Any signal about how long rates stay elevated, or how incoming leadership under Warsh might approach policy differently, could influence bond prices, CD yields, and the broader market tone well into the second half of the year. |
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THE NUMBER THAT MATTERS |
3.30% |
The Fed’s Preferred Inflation Gauge |
That is the annual inflation rate from March's Consumer Price Index report, the most recent reading available. It is the highest since May 2024 and arrived after months of gradual progress toward the Fed's 2% target. The jump was driven almost entirely by gasoline prices, which rose more than 21% in a single month as the Iran war disrupted global oil flows. The Fed's preferred inflation gauge, which strips out food and energy, ran at 3.0% annually. Both figures sit well above the 2% target. For retirees living on a fixed income or drawing steadily from savings, this number matters because rising prices reduce what your dollars can actually buy. Every dollar that leaves your portfolio today stretches less far if inflation stays elevated. That is why the path the Fed takes from here carries real weight for your financial security. |
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WHAT WE’RE WATCHING THIS WEEK |
INFLATION DATA |
ENERGY: Oil Pushes Toward $100 as Hormuz Trade Stays Near a Standstill |
The Strait of Hormuz normally carries roughly one in five barrels of oil and gas moving through global markets each day. Since the U.S.-Iran war began nine weeks ago, shipping traffic through the waterway has been reduced to a small fraction of its normal volume. The situation changes almost daily, with some ships still getting through, but the disruption has been severe enough that the International Energy Agency has called it the largest oil supply shock in history. About 2,000 ships remain stranded in the Gulf. Iran recently proposed reopening the waterway if the U.S. lifts its naval blockade, but the White House has expressed skepticism and Iran's nuclear program remains a sticking point. The United Arab Emirates also announced Tuesday it is leaving the OPEC+ alliance on May 1. Researchers at the Dallas Fed project crude could peak near $115 a barrel by October if the conflict continues. |
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SMART MONEY SIGNAL |
ECONOMIC DATA: First Read on Q1 GDP Arrives Thursday Morning |
On Thursday, the Bureau of Economic Analysis releases its first estimate of economic growth for the first quarter of 2026. This number matters a great deal right now. The fourth quarter of 2025 came in at just 0.5% growth after being revised down significantly from an initial 1.4% estimate. If Q1 shows further weakness alongside the current inflation rebound, it would confirm the early stages of what economists call stagflation, meaning slow growth combined with rising prices. The Federal Reserve Bank of Dallas published research this month showing the Iran war's energy shock has slowed U.S. manufacturing output growth to its weakest pace since early 2024. A soft GDP number alongside elevated inflation would further narrow the Fed's options and could put additional upward pressure on longer-term bond yields. |
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WORTH KNOWING |
EARNINGS: Five Magnificent Seven Members Report Today and Tomorrow |
Amazon, Alphabet, Microsoft, and Meta report earnings today after the market closes. Apple follows Thursday. These five companies span three different S&P 500 sectors — technology, communication services, and consumer discretionary — and together they carry enormous weight in the index, meaning their results can move your broad index funds and target-date retirement accounts meaningfully even if you hold no individual stocks. The backdrop includes some uncertainty after a Wall Street Journal report on Tuesday revealed that OpenAI, a major partner to several of these companies, missed its own revenue and user-growth targets. Investors will be watching for any signs of slowing in cloud spending, digital advertising, or artificial intelligence investment. Strong results could lift stocks broadly. Disappointments could add to recent volatility. |
LEADERSHIP: A New Fed Chair Could Be Running Policy by June |
Kevin Warsh is moving toward confirmation as the next Fed chairman, with a Senate Banking Committee vote expected this morning. His approach to monetary policy differs meaningfully from Powell's. He has publicly called the Fed's slow response to post-pandemic inflation a "fatal policy error" and has said he wants a new inflation framework, a smaller Fed balance sheet, and a less talkative central bank. Whether that translates to faster rate cuts once he takes over, or a firmer commitment to holding rates until inflation fully retreats, is the central question markets are working to answer. Economists at EY-Parthenon expect Warsh to be confirmed in time to chair the June meeting. That transition is worth keeping in mind as you think about the interest rate environment for the months ahead. |
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The Fed will almost certainly hold rates steady today, but the real story is the handoff now underway at the most powerful financial institution in the country. Inflation is at 3.3%, oil is near $100, and a new chairman with a different philosophy is likely days away from taking over. Your higher-yielding savings instruments remain valuable right now, but the rate environment ahead depends heavily on how quickly new Fed leadership moves and how long the energy disruption in the Middle East continues. |
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