A divided Federal Reserve left interest rates unchanged on Wednesday.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices,” the Fed said in a statement.
The central bank has maintained its benchmark interest rate target at a range of 3.5 percent to 3.75 percent since its last cut in December.
The Fed noted that the economy faces risks of higher inflation and slower growth due to the war with Iran. By law, the Fed’s policy seeks to achieve maximum employment and price stability, which the Fed considers consistent with a two percent rate of inflation.
“Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate,” the Fed said.
Fed Governor Stephen Miran dissented from the decision, preferring a quarter-point rate cut. Miran, who served as the chair of the Council of Economic Advisors in the Trump White House prior to being elevated by President Trump to the Fed, has consistently supported lowering the Fed’s target.
Three regional Fed presidents—Beth Hammack of the Cleveland Fed, Neel Kashkari of the Minneapolis Fed, and Lorie Logan of the Dallas Fed, also voted agains the Fed’s decision. They supported leaving rates unchanged but did not support what the Fed described as the “inclusion of an easing bias in the statement at this time.”
The “easing bias” appears to come from this language added to the Fed statement: “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 suggest that Kevin Warsh, whose nomination to lead the Fed was advanced by the Senate Banking Committee on Wednesday, would have an uphill battle to convince Fed officials to support rate cuts.
It’s rare for a Fed decision to attract this many dissents. Typically, the Fed operates through consensus. The last time there were four dissents from voting members of the Federal Open Market Committee, the Fed’s monetary policy setting panel, was 1992. The openly divided Fed will be part of the tumultuous legacy of Jerome Powell, who has served as Fed chairman since 2018 and whose term ends on May 15.
Financial markets expect the Fed will cut the federal funds rate, the overnight borrowing rate banks pay to borrow reserves from each other, one time this year. President Trump has criticized the Fed and its outgoing chairman for not cutting rates.
This was the final meeting of the FOMC that will be chaired by Powell. Powell has declined to say whether he will stay at the Fed after his chairmanship ends. His term as a governor of the Fed, which gives him the right to participate in FOMC meetings and a vote on monetary policy, continues until 2028. By tradition, departing Fed chairmen step down from the Fed altogether when their replacement takes office. Powell’s contentious relationship with Trump, who he has accused of attempting to subvert the independence of the central bank, has sparked speculation that he could decide to remain.
