The unusually divided Federal Reserve held its key interest rate steady on Wednesday as policymakers grappled with the policy impact of persistent inflation and awaited an imminent leadership change at the central bank.
In probably Chairman Jerome Powell’s last meeting, the rate-setting Federal Open Market Committee voted to keep the benchmark funds rate in a range between 3.5%-3.75%. The market was pricing in a 100% probability of no change.
However, the meeting took a dramatic turn amid a huge crowd of officials who resisted the message that rates could be cut further.
Amid expectations for a regular vote to keep the benchmark funds rate steady, the Federal Open Market Committee was split along 8-4 lines, with officials expressing varying reasons for their votes.
The last time four FOMC members dissented was in October 1992.
Governor Stephen Miron, as he has done since joining the central bank in September 2025, dissented in favor of a quarter-percentage point cut.
The other three “no” votes came from regional chairs Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lori Logan of Dallas. He said he agreed with the moratorium but “do not support including bias reduction in the statement at this time.”
At issue for all three was this sentence: “When considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the emerging outlook, and the balance of risks.”
The phrase indicates the likelihood that the next move will be lower, meaning the word “additional” indicates that the most recent rate action has been cut. Hammack, Kashkari and Logan, as well as many other Fed officials, have consistently warned about the dangers of persistent inflation. Higher prices signal higher rates for the Fed, which is taking an accommodative stance through the latter half of 2025.
‘Inflation has increased’
Markets were widely expecting this to hold and virtually no change in prices for the rest of this year and until 2027. Fed officials indicated at their March meeting that they expect a cut this year and then another cut in 2027, which would bring the funds rate down to its expected “neutral” level of around 3.1%.
Stocks were lower on Wednesday as oil prices edged higher and investors awaited high-profile earnings from four of the “Magnificent Seven.”
The Fed’s decision marked the third consecutive meeting where the committee backed down after three consecutive cuts last year.
For most of his eight years as chairman, Powell has been able to maintain strong consensus among the committee, even as the Fed has struggled to control inflation and resist aggressive political pressure from the White House.
However, policymakers are facing an economic environment where inflation is actually well above the Fed’s 2% target, as President Donald Trump’s tariffs and rising energy prices complicate policy. Normally, Fed officials would focus on temporary price shocks from both factors, but the duration of the boom has raised concerns about the longer-lasting consumer impact.
On the other hand, the Fed’s so-called dual mandate has eased concerns over low rents and an underfire labor market.
Nonfarm payrolls rose by a better-than-expected 178,000 in March, while the unemployment rate fell to 4.3%. For April, payroll processing firm ADP reported an average weekly private payrolls increase of around 40,000, suggesting the jobs picture remains healthy, if less than robust.
With the rates decision behind it, attention will immediately turn to Powell’s post-meeting news conference. Markets usually closely monitor the chairman’s comments for clues about the future direction of policy, but the most prominent question in this case will be whether Powell will remain on the board after his term as chairman ends in May.
Earlier in the day, the Senate Banking Committee nominated President Donald Trump’s Kevin Warsh as the next Fed chair in a party-line vote. The full Senate is widely expected to follow suit, setting up the Fed’s first leadership change since Powell took office in 2018.
During Powell’s press conference, he congratulated Wersh on the progress of his appointment.
powell’s choice
Powell and Eccles faced similar challenges in the form of pressure from the White House on monetary policy. In Ackles’ case, President Harry S. Truman pressured the Fed to keep rates low to help reduce government borrowing costs. Trump has pressured the Fed to help the housing and labor markets and ease the funding burden of the country’s nearly $39 trillion national debt.
In the Eccles era, the confrontation led to the 1951 Treasury-Fed Agreement, which helped formalize the Fed’s independence by creating a clear barrier between the two institutions.
Warsh has talked about reopening the accord and modernizing it for the current era, where the central bank’s fixed income holdings total about $6.7 trillion. The chairman-elect has advocated strengthening the relationship with better coordination on debt issuance, furthering Warsh’s goal of reducing the Fed’s footprint in the bond market.
Powell has spoken strongly about the Fed’s independence. Justice Department efforts to subpoena him over the Fed building renovation project have so far failed, and the criminal investigation into the matter has been closed.
His reasons for stopping included waiting until the renewal investigation – which was handed over to the Fed’s inspector general by US Attorney Jeanine Pirro – to conclude. Additionally, there are some ongoing issues regarding independence that Powell could oppose as governor, including the potential replacement of regional Fed chairmen.
