An unusually divided Federal Reserve on Wednesday left key interest rates unchanged as policymakers grapple with the policy implications of persistent inflation and await an impending change in central bank leadership.
In what may be Chairman Jerome Powell’s last meeting, the rate-setting Federal Open Market Committee voted to keep the benchmark funds rate between 3.5% and 3.75%. The market had 100% priced in the possibility that there would be no change.
But the meeting took a dramatic turn as a surge of officials objected to the message that further rate cuts were possible.
Amid expectations for a regular vote to keep benchmark fund rates unchanged, the Federal Open Market Committee was split 8-4, with officials giving different reasons for their vote.
The last time four FOMC members voted against it was in October 1992.
Governor Stephen Milan opposed it in favor of a quarter-point rate cut, as he has since taking over at the central bank in September 2025.
The remaining three “no” votes came from regional presidents Beth Hammack of Cleveland, Neil Kashkari of Minneapolis, and Laurie Logan of Dallas. They agreed to leave the bill unchanged, but said, “We do not support incorporating a moderation bias into the statement at this point.”
At issue for the three members was a sentence that read: “In considering the extent and timing of further adjustments to the target range for the federal funds rate, the Committee will carefully evaluate the balance of available data, evolving prospects, and risks.”
This phrasing suggests that the use of the word “additional” may make the next policy cut less likely, reflecting that recent interest rate policy has been rate cuts. Messrs. Hammack, Kashkari and Logan, along with several other Fed officials, have warned of the dangers of persistent inflation. Rising prices foretell that the Fed will raise interest rates, but the Fed has an easing bias from the second half of 2025.
“Inflation is increasing”
“Inflation is rising, partly reflecting recent increases in global energy prices,” the committee said in a statement after the meeting.
The market is widely expected to leave prices unchanged, and in fact is pricing in no changes from the rest of this year until 2027. At its March meeting, Fed officials said they expected one rate cut this year and another in 2027, bringing the funds rate down to an expected “neutral” level of about 3.1%.
Stocks fell on Wednesday as oil prices soared and investors awaited high-profile gains from four of the Magnificent Seven.
The Fed’s decision marks the third consecutive meeting in which the committee opted for a wait-and-see approach, following three consecutive interest rate cuts last year.
Powell has been able to maintain strong consensus within the committee for most of his eight years as chairman, even as the Fed struggles to curb inflation and resist aggressive political pressure from the White House.
But policymakers face an economic climate where President Donald Trump’s tariffs and soaring energy prices complicate policy, and where inflation is actually well above the Fed’s 2% target. Normally, Fed officials would look at temporary price shocks from both factors, but there are growing concerns that prolonged price increases could have a longer-term impact on consumers.
Despite the Fed’s so-called dual mandate, concerns about a labor market with fewer hires and fewer layoffs are easing.
Non-farm payrolls increased by 178,000 people in March, more than expected, and the unemployment rate fell to 4.3%. Payroll processing firm ADP reported an average weekly increase in private payrolls of about 40,000 people in April, further showing that the employment situation is healthy, if not solid.
With the interest rate decision in the background, Chairman Powell’s post-meeting press conference will quickly become a focus. Markets typically monitor the chairman’s comments for clues about the future direction of policy, but in this case, the most interesting question will be whether Powell will remain on the board after his term as chairman ends in May.
Earlier, the Senate Banking Committee on a party-line vote advanced President Donald Trump’s nomination of Kevin Warsh to be the next Federal Reserve Chairman. The entire Senate is widely expected to follow suit, marking the first change in the Fed’s leadership since Powell took office in 2018.
Mr. Powell’s choice
Mr. Powell faces a choice: either step down now to allow Mr. Warsh to take over, or serve out all or part of the remaining two years of his term as president. If Powell chooses to remain, he will be the first chair since Marriner Eccles in 1948 to not leave the board.
Mr. Powell and Mr. Eccles faced similar challenges in the form of White House pressure on monetary policy. In Eccles’ case, President Harry S. Truman asked the Fed to keep interest rates low to reduce the government’s borrowing costs. President Trump has been pressuring the Fed to support the housing and labor markets and help ease the burden of financing the nearly $39 trillion national debt.
During the Eccles era, this conflict led to the 1951 Treasury-Fed Agreement, which helped formalize the Fed’s independence by creating a clear barrier between the two institutions.
Mr. Warsh talked about restarting and modernizing the agreement for the current era, when central bank debt holdings total approximately $6.7 trillion. The incoming chair has advocated better coordination on bond issuance and a stronger relationship, while advancing Mr. Warsh’s goal of reducing the Fed’s influence in bond markets.
Mr. Powell spoke strongly about the Fed’s independence. Efforts by the Justice Department to subpoena him over plans to renovate the Federal Reserve building have so far failed, and a criminal investigation into the matter has been dropped.
His reasons for staying on include waiting until the review of the investigation handed over by U.S. Attorney Jeanine Pirro to the Fed’s inspector general is completed. There are also ongoing issues surrounding independence, which Mr. Powell may resist as president, including the possibility of replacing the regional Fed presidents.
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