Fed holds rates steady amid dissent
The uncharacteristically divided Federal Reserve kept its key interest rate steady on Wednesday as policymakers grappled with the policy impact of persistent inflation and awaited a looming leadership change at the central bank.
The Federal Open Market Committee, which sets possible interest rates at Chairman Jerome Powell’s last meeting in the administration, voted to keep the benchmark funds rate between 3.5% and 3.75%. Markets were pricing in a 100% chance of no change.
But the meeting saw a dramatic turn at a time when officials are increasingly opposing messages suggesting further interest rate cuts are possible.
Amid expectations for a routine vote to keep benchmark funds rates steady, the Federal Open Market Committee split 8-4, with officials expressing differing reasons for their vote.
The last time four FOMC members dissented was October 1992.
Governor Stephen Miran opposed a quarter-point cut, as he has since joining the central bank in September 2025.
The other three “no” votes came from Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas. They said they agreed to the pause but “do not support including the easing trend in the statement at this time.”
At issue for the trio was this sentence: “The Committee will carefully consider incoming data, the evolving outlook, and the balance of risks when considering the scope and timing of additional adjustments to the federal funds rate target range.”
The expression indicates a lower probability of the next move; It is implied by the use of the word “additional”, reflecting the recent interest rate actions being a discount. Hammack, Kashkari and Logan, along with many other Fed officials, have warned of the dangers of persistent inflation. Higher prices point to higher rates for the Fed, which has been on an expansionary trend since the second half of 2025.
In the statement made after the meeting, the committee stated that “Inflation is high, and this is partly a reflection of the recent increase in global energy prices.”
Markets were widely expecting this hold and are actually pricing in no change for the remainder of this year and into 2027. Fed officials at the March meeting stated that they foresee an interest rate cut first this year, then another cut in 2027, and reduced the fund rate to the expected “neutral” level of around 3.1%.
The decision was the third consecutive meeting where the committee chose to disagree, following three consecutive cuts last year.
Although the Fed has struggled to contain inflation and resist aggressive political pressure from the White House, Powell has managed to maintain a strong consensus among the committee for most of his eight years as chairman.
But policymakers face an economic environment where inflation is running well above the Fed’s 2 percent target as Trump’s tariffs and rising energy prices complicate policy. Normally, Fed officials would consider temporary price shocks from either factor, but the duration of the fluctuations has raised concerns about the longer-term impact on the consumer.
On the other side of the Fed’s so-called dual mandate, concerns about a low-hiring, low-wage labor market have eased.
Nonfarm employment increased by 178,000 in March, better than expected, while the unemployment rate fell to 4.3%. For April, payroll processing company ADP reported the average weekly private payroll increase was around 40,000; This suggests that the job picture is healthy, if not solid.
Following the interest rate decision, attention will quickly turn to Powell’s post-meeting press conference. Markets usually watch the president’s statements closely for clues about the future direction of policy, but the big question in this case will be whether Powell will stay on board beyond his term as president, which ends in May.
Earlier in the day, the Senate Banking Committee approved President Donald Trump’s nomination of Kevin Warsh to be the next Fed chairman in a party-line vote. The full Senate is expected to follow suit, marking the Fed’s first leadership change since Powell took office in 2018.
Powell faces a choice: Leave immediately upon Warsh’s inauguration, or serve out all or part of the remaining two years of his term as governor. If Powell chooses to stay, it would be the first time a seat on the Board has not been reserved since Marriner Eccles in 1948.
Powell and Eccles faced similar challenges in the form of White House pressure on monetary policy. In the Eccles case, President Harry S. Truman pushed the Fed to keep rates low to help reduce government borrowing costs. Trump has pressed the Fed to aid housing and labor markets and help reduce the burden of financing the nation’s nearly $39 trillion national debt.
Under Eccles, the conflict led to the 1951 Treasury-Fed Agreement; this agreement helped formalize the Fed’s independence by creating a clear barrier between the two institutions.
Warsh talked about reopening the deal and streamlining it for the current period, when the central bank’s fixed income assets total around $6.7 trillion. The president-elect has advocated strengthening the relationship with better coordination on debt issuance while advancing Warsh’s goal of reducing the Fed’s pressure on the bond market.
Powell has spoken strongly about the Fed’s independence. The Justice Department’s effort to subpoena the Fed regarding its building renovation project has so far failed, and the criminal investigation into the matter has also been halted.
Reasons to stay include waiting for the completion of the renewal investigation, which U.S. Attorney General Jeanine Pirro has handed over to the Fed inspector general. There are also ongoing issues with independence that Powell may resist as chairman; these include the potential replacement of regional Fed chairmen.
