Upcoming Fed meeting – what do experts predict?
28 APR, 2026
By Joanna Piwko from RankiaPro Europe
As the Federal Reserve approaches its third meeting of 2026, the central bank finds itself at a historic crossroads. This collection of expert analyses explores the complex transition from Jerome Powell’s tenure to the expected leadership of Kevin Warsh, set against a backdrop of geopolitical tension in the Middle East and a volatile energy market. While political pressure for aggressive rate cuts mounts, the Fed remains tethered to data, balancing a softening labor market against persistent inflation risks. From the future of the $7 trillion balance sheet to the impact of AI on "neutral" interest rates, these strategists break down why the road to 0% rates is much steeper than the White House might hope.
Too many expectations for a dovish shift in monetary policy from Warsh
Raphael Olszyna-Marzys, International Economist at J. Safra Sarasin
Last week’s confirmation hearing for Kevin Warsh brought few surprises, with Democrats—led by Elizabeth Warren—questioning his independence from Donald Trump, while Republicans praised him. Senator Thom Tillis reiterated that there would be no confirmation until the Department of Justice (DoJ) dropped its investigation into Jerome Powell.
Over the weekend, the DoJ closed the investigation, paving the way for Warsh’s confirmation. Jerome Powell may remain a Fed governor after his term as chair ends on May 15, 2026, especially if the Fed’s political independence is questioned. He is expected to clarify his plans after the next FOMC meeting.
During the hearing, Warsh reiterated his previous views: he supports the Fed’s operational independence but believes its communication needs improvement. He criticized forward guidance and called for a “new monetary policy framework”, though without much detail. Eliminating the Summary of Economic Projections, however, would not be beneficial (...)
On interest rates, Warsh refused to back Trump’s 0–1% target, arguing that balance sheet reduction and rates are closely linked—a view seen as misleading. Unless the U.S. enters a recession, rates are unlikely to fall that low. He also avoided repeating earlier claims that an AI-driven productivity boom would justify lower rates (...)
Regarding the Fed’s balance sheet, Warsh argued it is too large, blurring the line between monetary and fiscal policy, and that reducing it would boost credibility and allow lower rates. We remain skeptical: while it has nearly tripled in nominal terms, it has risen more modestly relative to GDP (16% to 21%) (...)
The Fed’s ability to shrink the balance sheet further is limited, as recent T-bill purchases were needed for market stability. A shift in composition—toward T-bills instead of long-term Treasuries—is more feasible. However, a “reverse operation twist” could steepen the yield curve, potentially conflicting with the Trump administration without more aggressive rate cuts.
As for the Fed’s balance sheet, Warsh reiterated a long-standing view: it has become too large, blurring the line between monetary and fiscal policy. A smaller balance sheet would clarify policy, strengthen credibility, and allow for lower policy rates. We are skeptical. In nominal terms, yes, it has grown significantly, nearly tripling since the financial crisis. But relative to the size of the economy, the increase has been much more modest, rising from 16% to 21% of GDP. Moreover, the Fed’s ability to reduce it further is limited; recent purchases of Treasury bills were necessary to maintain stability in money markets. A change in composition—replacing long-term Treasuries with T-bills—is more feasible than shrinking its size, preserving efficiency while limiting the Fed’s influence on long-term rates. However, a “reverse operation twist” would likely steepen the yield curve, potentially clashing with the Trump administration in the absence of more aggressive rate cuts.
Robeco: Fed at the Limit
Martin Van Vliet, Global Macro Strategist at Robeco
More cuts expected later this year
The conflict in the Middle East has significantly increased uncertainty regarding the interest rate outlook, as acknowledged by the Fed during its last meeting in mid-March. While further rate cuts had previously been signaled, the emergence of upside risks to inflation has forced policymakers to also consider a "tail-risk" scenario involving higher benchmark rates.
A noteworthy moment during the March press conference was Chair Powell’s emphasis on the role of Artificial Intelligence investments in temporarily raising the "neutral" interest rate. In this context, he observed that policy rates are now "around the border between restrictive and not," adding that "in the absence of further progress on inflation, rate cuts would not be appropriate." That said, the Fed's updated economic projections continue to indicate lower policy rates over the next two years, with a median projection for the long-term "neutral" interest rate near 3%.
Our central scenario still forecasts two rate cuts during the year, under the leadership of the new Fed Chair, Kevin Warsh. The main risks to this view are a further escalation of hostilities (and a resulting slowdown in the decline of oil prices), as well as a potential strengthening of the labor market. Our base case, however, assumes upside risks to unemployment, as corporate hiring intentions remain modest.
Curve flattening easing
We adopted a more constructive stance on U.S. duration when 5-year Treasury yields exceeded 4%. Since then, yields have returned to approximately 3.90%. Even at these levels, and in light of our Fed forecasts relative to market expectations, we maintain a moderately positive positioning on duration.
From a yield curve perspective, following the flattening observed in February and March, we believe the 2-year and 5-year segments offer greater value than 10-year maturities. On the long end of the curve, valuations for 30-year bonds appear more attractive than those for 10-year bonds, particularly regarding inflation-linked securities.
Fed Meeting: Risk Assessment
Paolo Zanghiri, Senior Economist at Generali Investments
Since the Federal Reserve is expected to keep interest rates unchanged at Wednesday's meeting, attention will focus on any signals regarding future monetary policy that may appear in the central bank's statement or in the post-meeting press conference by Fed Chair Jerome Powell, which could be his last.
The focus will be on how the Federal Reserve's risk assessment has changed since the mid-March meeting. At that time, the Federal Open Market Committee (FOMC) signaled an increase in inflation risks and greater threats to economic growth, largely in response to the conflict involving the U.S., Israel, and Iran.
The recent reduction in tensions has diminished the probability of worst-case scenarios occurring, which might have led to more aggressive rate cuts to support the economy. Our baseline hypothesis continues to anticipate one reduction this year, most likely in December.
The Department of Justice's decision to drop charges against Powell is expected to accelerate Kevin Warsh’s Senate confirmation, clearing the way for him to chair the FOMC meeting as early as June.
Status Quo and Flexibility
François Rimeu, Senior Strategist at Crédit Mutuel AM
The Federal Reserve (Fed) is holding its third meeting of the year against a backdrop of a balanced labor market. The March employment report, which showed a decline in unemployment and a rebound in job creation, supports a "wait-and-see" stance. This allows the Fed to keep its focus on its inflation target, especially in an environment of persistent geopolitical uncertainty in the Middle East.
This is very likely to be the last meeting chaired by Jerome Powell. The Department of Justice’s recent decision to drop its investigation removes the main obstacle to his succession, although Powell has not yet specified whether he intends to remain in his position as Governor (until January 2028). The Senate Banking Committee is scheduled to vote on Kevin Warsh's nomination as Chair on April 29, the second day of this meeting.
Our Forecasts:
- Policy Rates: We expect the Federal Open Market Committee (FOMC) to maintain the target range at 3.50%–3.75%, with broad consensus. Monetary policy remains well-positioned to address the risks associated with the Fed's dual mandate (inflation and employment).
- Communication: The statement will likely introduce a more symmetric bias: future decisions could move either downward or upward, depending on incoming data.
- Technical Measures: The Fed has already announced a slowdown in the pace of its Treasury purchases under the Reserve Management Purchases program, reducing them from $40 billion to $25 billion per month. These purchases began in late 2025 to address a temporary decline in reserves linked to the tax calendar—an effect that ended on April 15.
Conclusion:
The Fed will maintain its flexibility: a rate cut remains possible if inflation decreases or if the labor market weakens. However, further tightening cannot be ruled out either.
Not yet the moment for the Fed
Mabrouk Chetouane, Chief Market Strategist at Natixis IM Solutions
The Fed is undoubtedly expected to keep its benchmark interest rate unchanged at the upcoming monetary policy meeting (within a range of 3.5% to 3.75%), despite pressures from the energy sector. Most of the increase in consumer prices observed last March was attributed to rising energy and food components. The information currently available to voting members of the FOMC does not yet identify any potential pass-through effect from rising energy prices to core prices. Furthermore, data suggests that, on average, it takes a quarter for nominal pressures to transmit to the core component. Currently, only surveys measuring consumer or business confidence are reacting significantly to the energy crisis, against a backdrop where some doubts persist regarding the strength of the labor market.
At this stage, investor expectations remain firmly anchored to the Federal Reserve's median projection: namely, a 25-basis-point rate cut by the end of the year. In our view, the stakes for this meeting are twofold:
- Anchoring investor expectations regarding interest rates and inflation to avoid any unwanted tightening of financial conditions.
- Maintaining a range of available options to address any type of scenario.
This energy crisis, which is likely depressing supply (either through volume or price channels), could lead to a significant drop in aggregate demand. We believe cyclical risks could materialize and that the Fed's reaction function continues to place more weight on economic activity and, consequently, the labor market. We maintain that the Fed could cut its benchmark interest rate by 25 to 50 basis points between now and 2026—not to satisfy the wishes of the White House, but due to the necessity of supporting demand.
