Fed Leaves Rates Unchanged in Powell Last Meet
Jerome H. Powell on Wednesday (29.04.2026)
announced he would stay on as a governor at the central bank as internal divisions
sharpen about the policy path forward.
1.
Highly Divisive Meeting
o
Jerome H. Powell concluded his term with one of the
most divided meetings in decades.
o
Fed kept interest rates unchanged at 3.5–3.75%.
2.
Shift in Policy Debate
o
Discussion has moved from when to cut rates to
whether to cut at all.
o
Some officials want to signal that rate hikes are
also possible.
3.
Internal Dissents
o
Beth Hammack, Lorie Logan, and Neel Kashkari sought
clearer forward guidance.
o
Stephen I. Miran dissented in favor
of a rate cut.
4.
Powell to Stay as Governor
o
Powell will remain at the Federal Reserve until possibly
2028, breaking tradition.
o
This limits new appointments by Donald Trump.
5.
Leadership Transition
o
Kevin M. Warsh to take over as chair.
o
Likely to face internal disagreements and political
pressure for rate cuts.
6.
Inflation Concerns from Geopolitics
o
Rising energy prices due to the Iran war energy shock
are increasing inflation risks.
o
Fear of persistent inflation spreading to services
sector.
7.
Political Tensions Intensify
o
Trump continues to push for rate cuts and criticise
Powell.
o
Scott Bessent called Powell’s move “unusual”.
8.
Threat to Fed Independence
o
Powell warned that political and legal attacks could
undermine central bank independence.
9.
Legal Uncertainty Continues
o
Justice Department probe into Fed issues formally ended
but could be revived.
o
Powell indicated he will step down fully only when threats
subside.
Core Insight
The Federal Reserve is entering a phase of policy
uncertainty, internal division, and political confrontation, making future monetary
decisions more complex.
Jerome
H. Powell capped off his eight-year tenure as chair of the Federal Reserve with
the most divisive policy meeting in decades, as three officials suggested the central
bank should more directly signal that the Fed’s next move could just as likely be
a rate increase as a cut.
Adding
to the drama was an announcement by Mr. Powell that he would remain as governor
at the central bank after his term as chair ends May 15 and President Trump’s handpicked
successor, Kevin M. Warsh, takes over. That decision will deny Mr. Trump the opportunity
to appoint another governor to the Fed’s seven-member board until Mr. Powell leaves.
Mr.
Powell’s decision to stay, which he can do until January 2028, breaks with tradition.
But he pegged it to the numerous broadsides that Mr. Trump and his administration
had launched against the Fed in the last year, which he warned put the central bank’s
independence “at risk.”
Wednesday’s
meeting, at which the Fed voted to keep rates unchanged at a range of 3.5 to 3.75
percent, encapsulated the acute challenges that Mr. Warsh will inherit once he steps
into the role. In his confirmation hearing, Mr. Warsh said he wanted “messier” meetings
and for the Fed to have a good “family fight,” which he seems likely to get.
But
he is also at risk of becoming Mr. Trump’s newest target if he is unable to deliver
the rate cuts that the president has long demanded. He has spent years attacking
Mr. Powell for not cutting rates quickly or aggressively enough, calling him a series
of names including “too late,” “a stupid person” and a “moron.”
Mr.
Trump on Wednesday reiterated that it was a “good time” to lower rates, just as
officials at the Fed were making clear that they had turned more wary about providing
that relief. Inside the central bank, the debate has shifted away from when to cut
again toward whether to do so at all, resulting in the most divisive meeting since
1992. The calculus has changed largely because of the war in Iran, which has sent
energy prices soaring and lifted inflation.
Stephen
I. Miran, who was appointed to the Fed last year by Mr. Trump, issued his sixth
straight dissent and voted for a quarter-point cut. Presidents from three of the
regional reserve banks supported the decision to hold rates steady. But they wanted
the Fed to signal more explicitly in its policy statement that the next move from
the central bank was not necessarily another rate cut.
Instead,
the Fed maintained in its statement that “in 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 evolving outlook and the balance of risks.”
The
dissents came from Beth Hammack, president of the Cleveland Fed; Lorie Logan, who
runs the Dallas Fed; and Neel Kashkari, who heads up the Minneapolis Fed.
The
concern for a growing number of officials is that the longer the war with Iran drags
on, the bigger the economic hit will be. Officials fear a situation in which higher
energy prices push up prices elsewhere, especially across the services sector, leading
to a more persistent inflation problem that would be more difficult to address.
Expectations
about future inflation indicate that Americans have not lost faith in the Fed’s
ability to eventually bring inflation back down to its 2 percent target. But the
emergence of another shock that has pushed inflation further from the Fed’s goal
— the fourth in five years — will no doubt test that confidence.
On
Wednesday, Mr. Powell said the Fed needed to be “very cautious” about assuming what’s
happening with oil prices won’t have a more persistent effect on inflation. He made
clear, however, that nobody at the Fed was calling for a rate increase at the moment.
In
staying on as a governor, Mr. Powell will continue to retain a vote on monetary
policy, although he said he would keep a “low profile” in order to ensure as smooth
a transition as possible for Mr. Warsh and to give him the opportunity to build
a consensus within the Fed around his views.
“I
propose to be a very constructive participant in that process, really out of respect
for the office of the chair,” Mr. Powell said. He lauded Mr. Warsh for having the
“skills” to build a consensus inside the Fed.
Policy
decisions are made by a 12-person committee, which also includes the six other members
of the board of governors, the president of the Federal Reserve Bank of New York
and a rotating set of four presidents from the 12 regional banks.
Mr.
Powell’s decision to stay on came under immediate attack from the administration.
Scott Bessent, the Treasury Secretary, told Fox Business that it was a “highly unusual”
move and a “violation of all Federal Reserve norms.” He added that it was an “insult”
to Mr. Warsh.
The
White House did not immediately comment on Mr. Powell’s decision to stay, but it
will no doubt set up another clash with the president, who has vowed to fire Mr.
Powell if he does not resign from the Fed when his term as chair ends.
Mr.
Trump, in a social media post, said that Mr. Powell was staying at the Fed because
“he can’t get a job anywhere else.”
A
president can remove an official only if there is “cause,” which typically has meant
gross malfeasance or a dereliction of duty. Mr. Trump has tried to do just that
with Lisa D. Cook, a governor he accused of committing mortgage fraud before joining
the Fed. The Supreme Court is currently debating her lawsuit challenging the president’s
claim.
Mr.
Powell did not say how long he would stay on as a governor, but he made clear his
decision hinged on the outcome of a criminal investigation by the Justice Department
into cost overruns for renovations at the central bank’s headquarters in Washington
and whether he lied to Congress about them.
The
investigation prompted a rare public rebuke from Mr. Powell, who said it was a coercive
tool to get the Fed to comply with the president’s demands for lower rates. Mr.
Powell had previously said he would not leave the Fed until the investigation was
“well and truly over, with transparency and finality,” a condition he reiterated
on Wednesday.
The
Justice Department ended its investigation on Friday but left open the possibility
of reviving it. Federal prosecutors can also appeal a federal judge’s recent ruling
that quashed subpoenas issued to the central bank.
Senator
Thom Tillis of North Carolina, a top Republican who had held up Mr. Warsh’s confirmation
because of the investigation, suggested that any appeal would be not about pursuing
Mr. Powell but defending the power of prosecutors to issue subpoenas. An appeal
would only encourage Mr. Powell to stay on longer, however.
Mr.
Powell stressed that the legal threats against him and the institution were not
over. “I will leave when I think it’s appropriate to do so,” he said.
“My
concern is really about the series of legal attacks on the Fed, which threatened
our ability to conduct monetary policy without considering political factors,” Mr.
Powell said. “I’m worried that these attacks are battering the institution.”