Here's what advisors expect from this week's Fed meeting

The Federal Reserve meets this week, although any advisors (and a certain U.S. president) hoping for a rate cut are likely to be disappointed.

At its last meeting, the Federal Reserve kept its policy rate steady at 3.5% to 3.75%, again refusing to bow to repeated pressure from President Donald Trump to lower interest rates.

The Federal Reserve made three consecutive rate cuts last year and has been urged to slash rates further by Trump. Set against this backdrop, Fed Chair Jerome Powell has been on the receiving end of a pressure campaign from the president.

David Laut, chief investment officer at Kerux Financial thinks that the Fed is unlikely to make any interest rate changes next week, but also notes broader market conditions. “The rise in bond yields over the past two months has essentially acted like a rate hike, since it's raised consumer borrowing costs across the board,” he said, in a statement. “Investors will be looking for commentary from the Federal Reserve on how the oil price spike, which is showing few signs of abating, may affect the trajectory for rates for the rest of the year.”

The conflict between the U.S., Israel, and Iran sent the price of oil soaring in recent weeks, and, even with a ceasefire now in place, Brent Crude futures have again spiked above $101 a barrel.

Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management told InvestmentNews that, before the war in the Middle East, the market was pricing in two to three rate cuts this year, but because of the conflict, that expectation is no longer valid. “Indeed, the market is currently pricing no rate cuts for the remainder of this year,” he added.

In RBC’s opinion, the base case for this year is either no cuts, or one cut towards the end of the year, according to Skiba.

Advisors and investors will be closely watching the Federal Reserve’s machinations over the coming months. In May, Powell’s term leading the central bank ends and all eyes will be on his successor.

Former Fed governor Kevin Warsh has been nominated by President Donald Trump to succeed Powell. 

In prepared remarks during his fiery confirmation hearing last week, Warsh said that “monetary policy independence is essential.” Warsh added that he does not believe that independence of monetary policy is threatened when elected officials state their views on rates. “Fed independence is up to the Fed,” he said.

However, Senator Elizabeth Warren slammed Warsh over his ties to Trump, describing him as a “sock puppet” for the president.

RBC's Skiba does not expect Warsh to undertake any imminent interest rate u-turn when he steps into the Fed hotseat.

“Previously, there was an expectation in that as soon as Chair Warsh comes into the seat, he will insist on rate cuts, but it’s pretty clear that, if we see any rate cuts, this would be a back-end loaded development for this year,” he said. “But it doesn’t mean that we have to price out rate cuts completely, it just means that if we see those, they will happen between the back-end of this year and into 2027.”

With Warsh looking like he will be confirmed as the next Fed chair, Wednesday's Fed meeting may take on less importance in the sense that it may be Powell's last meeting as Chair, acccording to Glen Smith, chief investment officer, GDS Wealth Management. "We do not expect any rate cuts on Wednesday, and investors may place less emphasis on Powell's commentary as he wraps up his tenure as Chair," he said, in a statement. "Powell's tenure has been quite notable over the past eight years, from the Covid crisis, to surging inflation and rate hikes, to unprecedented political pressure from the administration on rates."

"While there tends to be market volatility during any Federal Reserve Chair transition, the expectation is that Warsh will be more dovish, and that tends to be supportive of stocks," Smith added.