Fed Holds Rates Flat, Powell To Stay On Board Amid Political 'Battering'

Officials at the Federal Reserve once again voted not to touch the central bank's benchmark interest rate in the face of stubbornly high inflation. 

Wednesday’s decision was the third consecutive meeting where central bankers opted not to shift monetary policy, but it nonetheless comes at an uncertain time for the Fed and the broader economy as Chair Jerome Powell’s term at the top of the central bank comes to a close and war strangles a key global trade route.

The Federal Open Market Committee last voted to cut rates in December, and Powell used the press conference after that decision to say that Fed governors were more comfortable waiting for data than pursuing precautionary action. Powell repeatedly reiterated that sentiment in the two previous press conferences in 2026 that followed decisions to hold rates flat, and Wednesday’s decision indicates that Fed governors’ sentiments around inflation and the job market are little changed. 

“The U.S. economy has just powered through shock after shock, and consumers are still spending,” Powell said. “How long can that go on in a world where, if gas prices were to go up a bunch more, that's taking otherwise spendable money out of people's pockets? But right now, we don't actually see much slowdown yet.”

The 8-4 decision from the Fed governors to hold rates included a dissent from Stephen Miran, a Trump appointee who has consistently backed rate cuts and voted for a 25-basis-point reduction.

Powell confirmed in a press conference Wednesday that April’s vote will be his last as Fed chair. His term is set to end on May 15, and Kevin Warsh, the Stanford University professor Trump picked to replace Powell, cleared the Senate Banking Committee in a party-line vote Wednesday and is on track for confirmation by the full Republican-led chamber of Congress.

While Powell said he will step aside from the top spot, he plans to stay on the Fed Board while the Justice Department winds down an investigation into a $2.5B, over-budget renovation of the Fed’s headquarters and Powell’s testimony to Congress about the project. 

U.S. Attorney for the District of Columbia Jeanine Pirro, a former Fox News personality who was leading the investigation into Powell, said Friday that she would drop the inquiry while pledging to monitor an internal inspector general’s investigation into the renovation. She added she will reopen the criminal investigation if warranted.

“I've said that I will not leave the board until this investigation is well and truly over with transparency and finality. I stand by that,” Powell said. “I'm encouraged by recent developments, and I'm watching the remaining steps in this process.” 

Powell declined to say how long he would remain on the board but pledged to keep a low profile and to create the space for Warsh, who at 55 years old is set to be the youngest Fed chair in history, to take over and lead the central bank. 

Powell did, however, reiterate pointed remarks that the central bank was facing a political assault. He will stay on the board until he feels that those pressures have diminished and it is appropriate to step aside, Powell said Wednesday while brushing aside concerns that his presence would diminish Warsh's role and reach.

“My concern is really about the series of legal attacks on the Fed,” Powell said. “These legal actions by the administration are unprecedented in our 113-year history, and there are ongoing threats of additional such actions. I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors.” 

Wednesday’s decision on rates was widely expected, with CME Group’s FedWatch tool indicating since April 22 that futures traders had 100% certainty that the central bank would hold its benchmark rate between 3.5% and 3.75%. 

The Fed has a mandate to independently maintain maximum employment and price stability, and it has been fighting to tame inflation since the supply shock kicked off by the pandemic. Its efforts have been complicated in President Donald Trump’s second term amid a whipsaw tariff regime, a mass deportation campaign, and now a war with Iran that has resulted in the closure of the Strait of Hormuz, a vital artery for global energy trade.    

Three of the four FOMC members who cast dissenting votes, Beth Hammack, Neel Kashkari and Lorie Logan, supported keeping the benchmark rate flat but wanted to shift the postmeeting guidance to reflect volatility on both sides of the Fed’s dual mandate. In its guidance, the Fed went from describing the inflation environment as “somewhat elevated” to “elevated, in part reflecting the recent increase in global energy prices.”

The Fed statement also says war in the Middle East is “contributing to a high level of uncertainty about the economic outlook,” a stronger tone than the “uncertain” implications of the conflict that the Fed described in March.

The core personal consumption expenditure price index, the Fed’s preferred inflation gauge that strips out food and energy costs, hit 3% in February after reaching a two-year high of 3.1% in January. Powell said Wednesday that core PCE inflation was at 3.2% in March and reiterated that the central bank maintains its long-held 2% target inflation rate. 

“That's our goal, and we'll stick at it until that happens. These events keep happening, which keep driving up costs, and the best thing we can do is to use our tools to guide inflation back down to 2%,” he said.  

Meanwhile, the latest labor market data indicated better-than-expected hiring, but mixed signals across monthly reports and high-profile layoffs from tech firms are testing the job market’s resilience. 

“The Fed isn’t seeing anything the market isn’t seeing — there are risks on both the inflation and labor market front and neither risk is loud enough to outweigh the other,” Uma Moriarity, senior investment strategist at CenterSquare, said in an email.  

Bill Pulte, the head of the Federal Housing Finance Agency and a longtime booster of the president, also attacked Powell last year in posts to his more than 3 million followers on X and called for a congressional investigation into Powell’s testimony about the headquarters renovation. 

After the attacks on Powell, Pulte targeted Fed Governor Lisa Cook with a weekslong campaign accusing her of mortgage fraud and calling for her to be ousted. Trump tried to fire Cook in August, but she refused to resign, arguing that the president didn’t have the authority to fire a Fed official without cause. The dispute has made its way to the Supreme Court, which heard the case in January and is expected to weigh in with a decision this summer. 

“The potential transition from Chair Powell to Kevin Warsh, combined with recent political pressure around the Fed, creates another layer of uncertainty that is difficult to model but highly relevant to capital markets,” said Cary Goldman, founder of Chicago-based developer Timber Hill Group.

Central bank independence from political interference is a cornerstone of the global economic order, not only for the Fed but for central banks across democracies. Investors largely grew comfortable with the fiery language around rates emanating from the Trump administration, confident that Powell and the rest of the FOMC would remain insulated. 

“If investors begin to price in a politicized Fed, it could weaken investors' confidence in forward rates, debt availability, and exit liquidity,” Goldman said.