On Wednesday, the Federal Reserve decided to keep its key interest rate unchanged amid unusually sharp internal disagreements. Policymakers are grappling with the impact of persistent inflation on monetary policy while awaiting an upcoming leadership transition at the central bank.
This meeting may have been the last chaired by Jerome Powell as Fed Chair. The Federal Open Market Committee (FOMC), which sets interest rates, voted to maintain the benchmark federal funds rate in the 3.5%–3.75% range. Markets had fully priced in no change.
However, the meeting took a dramatic turn.
While an uneventful vote to hold rates steady was widely expected, the actual FOMC vote was 8–4, with officials providing differing justifications for their positions.
The last time four FOMC members dissented was in October 1992.
Governor Stephen Milan, who has consistently dissented since joining the Fed in September 2025, again voted for a 25-basis-point rate cut.
Three other dissenting votes came from Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan. They agreed with holding rates steady but “did not support including an easing bias in the current statement.”
The point of contention for these three was the following phrasing: “In considering the extent and timing of any further adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
The word “further” implied that the next rate move would likely be a cut, since recent rate actions have been reductions. Hammack, Kashkari, Logan, and several other Fed officials have warned about the dangers of persistent inflation. Rising prices suggest the Fed may need to keep rates higher—even though since the second half of 2025, the Fed has generally leaned toward easier policy.
In its post-meeting statement, the Committee noted: “Inflation remains elevated, reflecting in part recent increases in global energy prices.”
It was widely anticipated that the Fed would stand pat; in fact, markets have priced in no rate changes for the remainder of this year and much of 2027. At their March meeting, Fed officials projected one rate cut this year and another in 2027, which would bring the funds rate down to around 3.1%—a projected “neutral” level.
This decision marks the third consecutive meeting where the Committee has chosen to hold rates steady, following three consecutive rate cuts last year.
For much of Powell’s eight-year tenure as chair, he has maintained strong consensus within the Committee, even as the Fed worked to curb inflation and resist aggressive political pressure from the White House.
However, policymakers now face an economic landscape where inflation remains well above the Fed’s 2% target, and Trump-era tariffs and surging energy prices have complicated policy. Typically, Fed officials look through temporary price shocks from such factors, but the prolonged duration of price increases has raised concerns about longer-term effects on consumers.
On the other side of the Fed’s dual mandate, worries about a “low-hiring, low-firing” labor market have eased.
March nonfarm payrolls rose by 178,000, beating expectations, while the unemployment rate fell to 4.3%. For April, payroll processor ADP reported average weekly private employment growth of around 40,000, further suggesting a job market that, while not strong, remains generally healthy.
With the rate decision now behind them, market attention will quickly turn to Powell’s post-meeting press conference. While markets typically scrutinize the chair’s remarks for clues on future policy direction, the most pressing question this time will be whether Powell will remain after his term as chair ends in May.
Earlier in the day, the Senate Banking Committee voted along party lines to advance President Donald Trump’s nomination of Kevin Warsh as the next Fed chair. The full Senate is widely expected to follow suit, which would mark the first change in Fed leadership since Powell took over in 2018.
Powell faces a choice: either depart when Warsh takes office, or remain for all or part of his remaining two-year term as a Fed governor. If Powell stays, it would be the first time since Marriner Eccles in 1948 that a sitting chair did not leave the Board.
Both Powell and Eccles faced similar challenges—White House pressure on monetary policy. In Eccles’s day, President Harry S. Truman pushed the Fed to keep rates low to help reduce government borrowing costs. Trump has pressured the Fed to aid the housing and labor markets and help ease the financing burden of the nearly $39 trillion national debt.
In Eccles’s era, such conflict led to the 1951 Treasury-Fed Accord, which formalized Fed independence by drawing a clear line between the two institutions.
Warsh has called for revisiting and modernizing the Accord to fit an era where the central bank’s fixed-income holdings total about $6.7 trillion. The incoming chair advocates better coordination on debt issuance while advancing his goal of reducing the Fed’s footprint in bond markets.
Powell has spoken forcefully about Fed independence. A Justice Department attempt to subpoena him regarding the Fed building renovation project has so far been unsuccessful, and the related criminal investigation has been dropped.
One reason Powell may stay is to see the renovation probe—now referred to the Fed’s Office of Inspector General by U.S. Attorney Jeannie Pirro—concluded. There are also ongoing independence issues that Powell, as a governor, could help resist, including possible changes to regional Fed presidents.
Comments