Fed Watch – 5/1/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker and thank you so much for joining us for this May 1st edition of Fed Watch.

Well, a big week in Fed watching, so let’s jump right in. The biggest headline item should have been the Federal Reserve meeting and rate decision this week. But rates did not change. They were wildly unexpected to move. So that’s kind of a non-issue for us today. Where we did see some fireworks was during the press conference after. In fact, this was Powell’s last press conference as chair of the Fed. Come May, and before the next meeting, he will be stepping down for Warsh to take over as chair. You might remember last week we were talking about Warsh’s Senate confirmation hearings. We were talking about Tillis, especially holding up that process until the Department of Justice probe was dropped, the charges were all dropped. That did, in fact happen last week. In fact, it was just after we had posted our episode. So the news caught up to us on Friday.

However, the good news is that that confirmation can now proceed as normal. We’re on track for that May date with a changeover in the chairmanship. The very interesting issue that Powell actually addressed proactively during the press conference was that he plans to stay on the board, not as chair, but as a governor until all of that Department of Justice, the charges, the investigation is, as he put it, well and truly over with finality and transparency. So even though everything is dropped at the moment, the Department of Justice did leave the door open to either bring back those charges. If new issues of wrongdoing are found, they turned the case over, essentially to the Fed’s inspector general, who has, by the way, investigated these renovations and cost overruns a couple of times in the past and previously found no evidence of wrongdoing. So odds are on that this can all go away smoothly. But Powell did say he wants to stay on the board to truly see this process through to its finish until there’s no chance of bringing back up new charges.

So at this point, it does seem unlikely that they’ll reopen the investigation and we can proceed. What that does in the meantime is it sets up the potential for Powell to be something of a shadow chair. Now, he said very clearly that he respects Warsh. He does not intend to be a shadow chair. Really, what this would do is it would deny President Trump a new opening, a new vacancy to fill on the board of governors until he does, in fact, vacate that seat. His current term does run for a few more years. So depending on his view of the issue, his judgment, we could see really until 2028 for him to stay in that seat. But we will see as time progresses.

In other news, big headline item this week, GDP first quarter advance estimate came in at 2.0%. There was a fairly even spread across things like consumer spending, investment, government side of the equation, the business investment component of the, the gain here, that was up 8.7% really perceived as being driven by AI investments that firms are making. We’ve actually done a lot of work into this AI investment component here at ITR. So chat with your economist if you haven’t yet. We do have several other resources, especially the most recent Insider webinar, we really delve into what types of firms are investing in AI. It’s very different across things like firm size across different sectors. So overall I think there is a lot more to come. Still somewhere on the order of between 10 and 15% of firms are using AI regularly in their day to day business. I’m sure we will see more here in the future.

On the consumer spending side of GDP contribution, though, that pace was a little bit slower than the prior quarter, up just 1.6%. We’re not yet able to see the really big impact from oil prices and how much consumer spending that, say, drawing down from other areas. Keep in mind, the conflict with Iran did just start in late February. So for only first quarter data, data only through March, really the heavily weighting is to that prior pre conflict period. One final data point for you today. Core PCE price index came in at 3.2%. So while this is the critical gauge of inflation that the Fed is watching, that is not down to the 2% level yet. We’re seeing much stickier, much more persistent inflation. Powell, during his press conference, did say that they are much less worried about the labor market being a major source of inflation. I think that just means we have other sources of inflation, and they are fairly wide ranging. Again, we’ve talked a lot about this from the energy side of things. The energy implications to higher prices. Wages, I think, are still somewhat sticky, somewhat stable as an upward contributor to price inflation. But these other factors accommodative monetary and fiscal policy, these more pervasive issues across the economy, those are going to be with us in more structural terms going forward.

So all of that to say a big week of several non-events but always giving us something good here to watch. Thanks for sticking with us through a very large data week. We’ll be back next week to do it all again right here on ITR Economics Fed Watch.