Jornal Do Brasilia - US Fed chief's plans in focus as central bank set to hold rates steady

Powell, who has been a frequent target of President Donald Trump, is set to hold a press briefing at 2:30 pm (1830 GMT) and all eyes will now be on his future plans.

The Fed said officials reconvened at 9:00 am for the second day of their policy meeting.

Fed officials will weigh the risks of surging energy prices and snarled supply chains due to the US-Israeli war on Iran, and analysts expect another pause in rate adjustments as effects of the conflict ripple through the world's largest economy.

The halt would keep interest rates at a range between 3.50 percent and 3.75 percent.

As Powell's tenure as Fed chairman ends May 15, pressure is mounting for the US Senate to confirm Trump's choice of his successor, Kevin Warsh.

The Senate Banking Committee is due to vote to advance Warsh's nomination on Wednesday morning too, which would mark a key step forward in his confirmation.

- Political concerns -

Since returning to power last year, Trump has frequently slammed Powell for not cutting interest rates more quickly, a policy that would turbocharge economic activity but could fuel inflation.

Trump's Justice Department had since opened a criminal probe into Powell and the Fed over cost overruns on building renovations, a move that the central banker in January called a tactic to erode the Fed's independence.

Last month, he vowed to stay on at the Fed until the investigation was concluded "with transparency and finality."

While Powell's term at the helm is soon expiring, he can remain a member of its board of governors until January 2028.

Republican Thom Tillis on the Senate Banking Committee separately said he would hold up confirmation of Warsh until the probe was resolved.

With the Justice Department saying Friday that it would drop the investigation, Tillis indicated he would support Warsh's confirmation.

Besides Trump's insults targeting Powell, he has also attempted to unseat Fed governor Lisa Cook over fraud allegations. A Supreme Court case on that attempt is ongoing.

Given this context, analysts are divided on whether Powell would stay on as a member of the board even after his term as chief ends -- a situation that would be unusual but not without precedent.

EY-Parthenon chief economist Gregory Daco expects Powell will remain, adding that it "would help preserve institutional continuity, anchor the existing communication approach, and provide a stabilizing counterweight during the transition."

- Future path -

While much attention will be on Powell's plans, policymakers will focus on the way forward for the US economy as it battles years of higher-than-expected inflation and recent weak jobs growth.

The Fed has a dual mandate of keeping inflation to its long-term two-percent target while ensuring maximum employment.

Higher energy prices due to the Middle East war caused US inflation to spike in March. While such supply shocks are often treated as temporary, central bankers have expressed concern that effects could be more lasting.

Surging energy prices could also slow down economic activity by raising production costs, affecting the employment side of the mandate.

Oxford Economics said in a note that there was "virtually no chance" rates would be cut on Wednesday.

"We'll look for any indication that Fed officials' assessment of the risks to their outlook has changed since the mid-March meeting," wrote Nancy Vanden Houten, lead US Economist at Oxford Economics.

At their last gathering, Federal Open Market Committee members said the risk of inflation rising and growth slowing had increased since the start of the war.

The Fed had been on a path of rate cuts late last year, buoyed by progress in its fight against inflation and aimed at addressing the labor market weakness.

Now, analysts say the way forward is less clear.

"There is, in my opinion, a non-negligible possibility that the statement could incorporate a two-sided formulation that would acknowledge that rate hikes could be appropriate if inflation remains above-target," Daco told AFP.

M. Silva--JDB