An unusually divided Federal Reserve on Wednesday held its key interest rate steady as policymakers grappled with the policy impact of persistent inflation and awaited a looming leadership transition at the central bank.
In what may have been Chair Jerome Powell’s final meeting at the helm, the rate-setting Federal Open Market Committee voted to hold the benchmark funds rate in a range between 3.5%-3.75%. Markets had been pricing in a 100% chance of no change.
However, the meeting saw a dramatic turn amid a groundswell of officials who opposed messaging that further rate cuts could be ahead. Amid expectations for a routine vote to hold the benchmark funds rate steady, the FOMC instead was split along 8-4 lines, with officials expressing different reasons for their vote.
The last time four FOMC members dissented was in October 1992.
Separately, during a news conference following the central bank’s decision, Powell signaled that he would remain on the Board of Governors for an indefinite period. He said he is waiting until an investigation into Federal Reserve’s renovations “is well and truly over with transparency and finality.”
“In a term generally marked by consensus building and few dissents, Chair Powell concludes his term with 4 dissents,” Brent Schutte, chief investment officer at Northwestern Mutual, wrote in an email. “This not only highlights the potential for more of the same in the coming months as a new Chair focused on changing the Fed takes over, but also the reality that the nearer term economic outlook remains highly uncertain given conflicting labor market and economic growth signals against a backdrop of inflation that has been stuck at 3% plus since the end of 2023.”
A divided Fed
Governor Stephen Miran, 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 presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas. They said they agreed with the hold but “did not support the inclusion of an easing bias in the statement at this time.”
At issue for the trio was this sentence: “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 phrasing indicates the likelihood that the next move would be lower, implied by using the word “additional,” which reflects that the most recent rate actions have been to cut. Hammack, Kashkari and Logan, along with several other Fed officials, have warned about the dangers of persistent inflation. Higher prices augur higher rates for the Fed, which has been on an easing bias since the latter part of 2025.
‘Inflation is elevated’
In the post-meeting statement, the committee noted that, “Inflation is elevated, in part reflecting the recent increase in global energy prices.”
Markets had been widely expecting the hold and in fact are pricing in no changes the rest of this year and well into 2027. Fed officials at the March meeting indicated they foresee one cut this year then another in 2027, putting the funds rate down to its expected “neutral” level around 3.1%.
Stocks were lower on Wednesday, as oil prices shot higher and investors waited high-profile earnings from four of the “Magnificent Seven.”
The Fed’s decision marked the third consecutive meeting where the committee chose to stand pat – following three consecutive cuts last year.
For most of his eight years as chair, Powell has been able to maintain strong consensus among the committee even as the Fed has struggled to contain inflation and resist aggressive White House political pressure.
Policymakers, though, face an economic climate where inflation indeed has held well above the Fed’s 2% target, as President Donald Trump’s tariffs and soaring energy prices are complicating policy. Normally, Fed officials would look through the temporary price shocks from both factors, but the duration of the surges has raised concern about the longer-lasting consumer impact.
On the other side of the Fed’s so-called dual mandate, concerns have abated over the low-hire, low-fire labor market.
Nonfarm payrolls in March grew by a better-than-expected 178,000, while the unemployment rate slipped to 4.3%. For April, payrolls processing firm ADP has reported average weekly private payroll growth around 40,000, further indicating that the jobs picture is healthy if less than robust.
Earlier in the day, the Senate Banking Committee in a party-line vote advanced Trump’s nomination of Kevin Warsh as the next Fed chair. The full Senate is widely expected to follow suit, setting up the Fed’s first leadership change since Powell took over in 2018.
During the Powell’s news conference, he congratulated Warsh on the progress of his appointment.
Powell’s choice
Typically, a Fed chair would depart once a successor is installed, but Powell signaled his intention to serve until the renovations investigation has been completed. His term expires in January 2028.
“I’m encouraged by recent developments, and I’m watching the remaining steps in this process carefully,” Powell said, commenting on his decision.
U.S. Attorney Jeanine Pirro recently handed over a Justice Department probe into renovations at the Federal Reserve’s headquarters to the central bank’s inspector general.
If the matter isn’t resolved and Powell’s stays on it would mark the first time a sitting chair didn’t leave the Board of Governors since Marriner Eccles in 1948.
Powell and Eccles faced similar challenges in the form of White House pressure on monetary policy. In Eccles’ case, President Harry S. Truman pushed 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 to help reduce the financing burden of the nation’s nearly $39 trillion national debt.
In the Eccles era, the clash led to the 1951 Treasury-Fed Accord, which helped formalize the Fed’s independence by creating a clear barrier between the two institutions.
Warsh has spoken of reopening the accord and modernizing it for the current era where the central bank’s fixed income holdings total some $6.7 trillion. The chair-elect has advocated strengthening the relationship with better coordination on debt issuance while furthering Warsh’s goal of lessening the Fed’s imprint in the bond market.
Powell has spoken strongly about Fed independence. By remaining as a governor, he can continue to influence the board as a member. He also denies Trump an opening to appoint another member to the board. Counting Warsh, the president would have three appointees on the seven-member board, including Governors Christopher Waller and Michelle Bowman from his first term.
“This means that the addition of Kevin Warsh to the FOMC will not swing the balance between doves and hawks, as Warsh will take Stephen Miran’s seat given Powell’s seat will not be open for the time being,” said Josh Jamner, senior investment strategy analyst at ClearBridge Investments.
— CNBC’s Christina Cheddar Berk contributed to this report.
