IEA Sees Gradual Hormuz Recovery Tipping Into Significant 2027 Surplus

The U.S. Federal Reserve is widely anticipated to hold interest rates steady this week during its first meeting under new Chair Kevin Warsh. The decision, due Wednesday afternoon, comes as inflation hovers at a three-year high, driven significantly by soaring energy prices linked to the conflict with Iran.

“

I think he's going to be in the wait-and-see camp.

Warsh, who is presiding over the Federal Open Market Committee (FOMC) meeting, faces a delicate balancing act. While inflation remains well above the Fed's 2% target, currently at 3.8% according to the central bank's preferred gauge, President Donald Trump has launched an unprecedented campaign to pressure the Fed into lowering rates. Trump's administration has blamed the Fed's policies for hindering economic growth.

Despite Warsh's past support for interest rate cuts, analysts expect him to adopt a wait-and-see approach. "It's pretty hard to justify a cut when you've got inflation in the pipeline already," said Dan North of Allianz Trade. The prevailing view is that the Fed will allow the current energy price shock to work its way through the economy before considering any policy changes.

“

It's pretty hard to justify a cut when you've got inflation in the pipeline already.

While the benchmark interest rate is expected to remain between 3.50% and 3.75%, attention will focus on the Fed's accompanying statement. Some policymakers have signaled a shift in forward guidance, suggesting the next move could be a hike rather than a cut. Warsh himself has previously advocated for removing the Fed's forward guidance altogether, arguing it limits flexibility. However, significant changes are not expected at his first meeting, with analysts anticipating a more "fractured environment" and gradual shifts toward more discretionary monetary policy decisions.

“

It may be a more fractured environment, certainly.

The Fed's quarterly summary of economic projections will also be released, offering insights into policymakers' expectations for inflation, growth, and future interest rate paths. Warsh, known for his "reform-oriented" agenda, has called for the Fed to abandon its "dot-plot" projections, but it is unlikely he will eliminate the exercise entirely at this initial meeting.

“

In this first instance, he may be going to suggest some changes to communication, and we may be in the early steps of a move towards more discretionary decisions when it comes to monetary policy.