Trump seems to be appealing to Powell for intervention as oil prices spiralled higher yesterday, once again hitting $100 a barrel. Inflation expectations are rising as a result, as consumers and businesses prepare for the rates to be passed through into their gas and energy prices.

If Powell were to cut rates, it would theoretically reduce some household and operational costs by making borrowing cheaper. In reality, for households hoping to reduce their overheads by securing cheaper mortgage rates, it takes considerably longer for a lower rate to trickle through.

The president also signalled that increasing oil prices are less of a concern to him than dismantling the Iranian regime. On Truth Social last night, he noted that the U.S. “makes a lot of money” when oil prices go up, but said, “of far greater importance … is stopping an evil empire, Iran, from having nuclear weapons, and destroying the Middle East and, indeed, the world.”

The rate-setting Federal Open Market Committee (FOMC) is due to meet next week, with investors overwhelmingly expecting a hold. The CME’s FedWatch barometer is tracking a more than 99% chance of a hold this month, rising in recent days amid chaos in the Middle East.

It is now “entirely plausible” that the FOMC won’t cut at all this year, argued EY-Parthenon chief economist, Gregory Daco, in a note to clients last night—even with a new Fed chairman installed this spring.

Daco wrote: “Fed officials are likely to resume easing only for clear ‘good’ reasons—more rapidly and sustainable progress toward the 2% inflation target—or clear ‘bad’ reasons—a meaningful deterioration in labor‑market conditions.”

The labor market has been a concern for economists over the past year. Powell has observed a stagnant, low-hire, low-fire environment. And a more optimistic jobs report at the start of the year was more recently damped by the latest data from the Bureau of Labor Statistics: While the unemployment-rate is 4.4%, nonfarm payroll employment decreased by 92,000 in February.

“We expect insufficient evidence … in the first half of the year, keeping the Fed on hold at least until July,” Daco continued. “Given our higher headline and core PCE inflation forecast, we have revised our baseline to show only one 25bps rate cut in 2026, likely in December, but it is entirely plausible that the Fed won’t deliver any rate cuts this year.”

Misreading the signals

While the Fed has favored a wait-and-see approach under Powell, some on Wall Street still expect the FOMC to chart a more dovish course than most anticipate.

Goldman Sach’s David Mericle wrote to clients last night that his expectations for the Fed’s path remains more dovish than the bank’s baseline forecase and market pricing, he explains that while above-target inflation makes it harder to cut soon, “by September, we expect both some further labor market softening and progress on underlying inflation to contribute to the case for a cut.”

Bank of America’s Aditya Bhave also suggested earlier this week that markets are misreading the Fed’s likely response to oil price increases. In a note released Tuesday, BofA’s senior economist noted supply shocks create risks to both sides of the Fed’s dual mandate, with the employment outlook remaining sluggish.

“Policy risks play out when demand is strong enough for activity to withstand a supply shock,” he explained. “This allows the Fed to focus on inflation, as it did in ’22. But when Russia invaded Ukraine, the U-rate was below 4%, core PCE inflation was over 5%, payrolls were running at 500k/month and consumers were flush with Covid stimulus cash.”