Fed meeting clouded by Iran war

Federal Reserve officials begin their April 28-29 meeting with markets expecting no rate change, while the Iran war and Jerome Powell’s uncertain tenure reshape the backdrop. (reuters.com) Reuters reported on April 27 that policymakers are widely expected to leave the federal funds rate at 3.50% to 3.75%, which would mark a third straight pause. (reuters.com) The same Reuters report said this meeting may be Powell’s last as chair, with Kevin Warsh waiting on Senate confirmation after a Justice Department probe tied up the succession fight. (reuters.com 1) (reuters.com 2) The policy problem is simple: war can hit growth and prices at the same time. Higher oil and shipping costs act like a tax on consumers, but they can also keep inflation above the Fed’s 2% target. (reuters.com 1) (reuters.com 2) That tension has spread beyond the Fed. At the International Monetary Fund and World Bank spring meetings in Washington from April 13 to 18, officials were already focused on energy shocks, supply disruptions and the Strait of Hormuz. (wam.ae) (reuters.com) One concrete sign came from swap-line discussions. Treasury Secretary Scott Bessent said on April 24 that U.S. talks on dollar swap lines with Gulf and Asian partners were part of ongoing, routine conversations. (reuters.com) A swap line is a central-bank credit line that lets one country exchange its currency for dollars, giving banks access to cash if funding markets seize up. Reuters said allies sought help managing fallout from the Iran war. (reuters.com) AGBI reported on April 20 that the United Arab Emirates had informally asked the United States about a swap arrangement that could let it exchange dirhams for dollars if the war caused longer-term strain. AGBI said the UAE’s net foreign reserves stood at $295 billion. (agbi.com) The UAE has publicly argued that such planning reflects caution, not distress. Gulf News reported the talks were presented as prudent preparation backed by strong reserves and confidence in the dirham’s dollar peg. (gulfnews.com) For Powell, that leaves a final familiar message: the Fed can wait on rates, but it cannot ignore an oil shock or a dollar-funding scare if the war widens. (reuters.com 1) (reuters.com 2)