What To Expect From The Federal Reserve's Meeting Wednesday

The market is effectively pricing a policy pause, but the more important implication is that the Fed is shifting from a rate-setting exercise to a credibility-management exercise. If Powell uses the press conference to sound constrained by geopolitical uncertainty, front-end yields should stay anchored while term premium can drift higher on inflation-risk repricing; that is a bad mix for long-duration assets even without any change in the policy rate.

The leadership subplot matters because it reduces the probability of a clean, predictable handoff. A delayed or contested transition would keep the Fed as a headline source of volatility into the summer, and that tends to widen cross-asset correlations: rates vol rises, financials underperform on policy uncertainty, and gold/defensive equity factor exposure gains a bid. If the successor is perceived as more activist on balance-sheet reduction and less willing to telegraph forward guidance, the curve can steepen even in a no-hike environment.

The biggest underappreciated second-order effect is that geopolitical inflation can coexist with weaker cyclical growth, which is usually toxic for equities because margin pressure arrives before labor data deteriorates enough to justify easing. That favors assets tied to higher realized volatility rather than outright directional beta. In this setup, the consensus may be underestimating how quickly oil-driven inflation can leak into breakevens and inflation-sensitive sectors while the Fed remains sidelined for several meetings.