TD Securities’ Global Strategy Team expects the Federal Reserve to keep the policy rate at 3.50–3.75% at the April FOMC meeting. It cites balanced labour markets and a rise in headline inflation linked to an oil shock.
The team expects the Committee to repeat a patient approach due to ongoing uncertainty. It also expects Chair Powell to keep a neutral stance on future policy.
Expected Market Reaction
TD Securities says rates may react only modestly to the Fed decision itself. It adds that rates could keep moving on news from the Middle East.
The note says the Senate Banking Committee will vote on Kevin Warsh’s nomination at 10am EST. It adds that markets will watch the Fed press conference for any comments about Powell’s succession, as this may be his last meeting as chair.
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Looking back at the Fed’s patient stance in April 2025, when the policy rate was 3.50-3.75%, feels like a different era. We are now grappling with the consequences of inflation that proved much stickier than anticipated following that period. The market’s current expectation is for a prolonged hold at a significantly higher rate, a stark contrast to the neutral tone we saw from former Chair Powell.
Inflation And Labor Market Crosscurrents
The oil shock mentioned last year was just the beginning, as core inflation remained stubbornly high through late 2025 and into this year. We saw core CPI hover near 3.8% for months, a level the new Fed Chair has signaled is unacceptable for considering any cuts. This persistence means traders should be wary of pricing in any dovish pivot soon.
Unlike the balanced labor market of early 2025, we are now seeing clear signs of softening. Recent non-farm payrolls have missed expectations, and the unemployment rate has crept up to 4.1% from the sub-4% levels seen consistently last year. This dynamic creates uncertainty, as the Fed is now fighting inflation even as the employment picture weakens.
This environment suggests positioning for higher volatility in the weeks ahead. With the Fed caught between sticky inflation and a slowing job market, implied volatility on interest rate options, such as those on SOFR futures, is likely to rise. We are already seeing the VIX index trade consistently in the high teens, a notable increase from the calmer period of spring 2025.
The leadership change at the Fed has clearly introduced a more hawkish bias than we saw during Powell’s final meetings. Traders should consider strategies that benefit from a flat or inverted yield curve, as the front end remains anchored by the Fed’s resolve. Any hint of weakness from the new Chair could cause a significant repricing, but for now, the path of least resistance appears to be higher-for-longer.
