Divided Fed officials hold rates; Powell to stay as governor

Published Thu, Apr 30, 2026 · 06:04 AM

[NEW YORK] US Federal Reserve officials left interest rates unchanged, but revealed a deepening division over the outlook for policy amid increased uncertainty caused by the conflict in the Middle East.

Four officials voted against the decision, including three who objected to language in their post-meeting statement that suggested the central bank would eventually resume cutting rates.

In what will be his last press conference as Fed chair, Jerome Powell said that he intends to remain at the central bank as a member of its Board of Governors. He said that Justice Department officials had assured him over the weekend they would not restart a controversial criminal investigation into the central bank unless the Fed’s internal watchdog recommended that.

Still, he noted, the US Attorney for the District of Columbia has said she might reopen the probe if warranted.

“I have said that I will not leave the board until this investigation is well and truly over with transparency and finality, and I stand by that,” Powell said. “I will leave when I think it’s appropriate to do so.”

The Fed’s statement on Wednesday said Cleveland Fed president Beth Hammack, Minneapolis Fed president Neel Kashkari and Dallas Fed president Lorie Logan “supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time”.

Governor Stephen Miran dissented in favour of a quarter-point reduction in rates.

The 8-4 vote marked the first time since October 1992 that four officials dissented against a Federal Open Market Committee decision. The committee left their benchmark federal funds rate in a range of 3.5 to 3.75 per cent.

Asked about the dissents, Powell said that they reflected the fact that the centre of the committee “is moving towards a more neutral place.” But, he added, “a majority of us did not feel like we needed to send a signal on that right now”.

Short-maturity Treasury yields, which track the near-term outlook for Fed monetary policy closely, rose after the decision as investors focused on the hawkish dissenters. The rate on the two-year note climbed as much as 11 basis points to 3.95 per cent on Wednesday, while traders added to bets the Fed will increase rates in 2027. The US dollar rose against most of its peers.

“The dissents clearly caught us and the markets by surprise and could potentially set the stage for a shift away from an easing bias at upcoming meetings,” said Subadra Rajappa, head of US research at Societe Generale.

The split on the committee focused on a phrase in the statement referring to “the extent and timing of additional adjustments” to rates. Following reductions in late 2025, the language suggested the Fed would eventually make further cuts. Since January, a growing number of officials have been pushing for a change that would signal more clearly the possibility that the Fed’s next move could be a rate hike, but the language was left unchanged on Wednesday.

Officials did agree to make a separate change to their statement, adding some emphasis to a line describing uncertainty emanating from the war in the Middle East. The new wording referenced the “high level” of that uncertainty.

Powell’s future

Powell’s decision to stay will deny US President Donald Trump the opportunity to fill a new vacancy at the Fed and could complicate the job of Kevin Warsh, who is on track to succeed Powell as chair pending his confirmation by the Senate.

Fed chairs traditionally resign from the central bank altogether when their chair terms expire. But Powell, whose term as chair ends May 15, can remain in his board seat until January 2028.

In staying, Powell vowed he wouldn’t seek to overshadow Warsh or retain outsize influence over monetary policy.

“I plan to keep a low profile as a governor,” he said. “There is only ever one chair of the Federal Reserve Board. When Kevin Warsh is confirmed and sworn in, he will be that chair.”

The Senate Banking Committee voted on Wednesday to advance Warsh’s nomination to the full Senate. Once confirmed, Warsh would take Miran’s seat.

Warsh will take the helm as the US-Israeli war with Iran continues to fan uncertainty among business leaders and economists. The resultant surge in energy prices has threatened to fuel already-stubborn inflation, and the extra burden on consumers could lead to slower growth and job cuts.

Central bank nightmare

That sets up a central banker’s nightmare: higher inflation and climbing unemployment that tug monetary policy in two directions at once.

For now, the unemployment rate appears to have stabilised. But net hiring has fallen to near zero over the past year, making the labour market vulnerable to shocks, according to multiple policymakers.

At the same time, inflation has been above the Fed’s 2 per cent target for five years. As officials met on Wednesday, Brent crude prices hit their highest since June 2022. While no Fed official has said they expect the next policy move to be a hike, several are keen to signal that it could be.

A report earlier this month showed consumer price inflation surged in March by the most in nearly four years on the back of a record increase in petrol prices. That spike is largely contained to energy prices for now, but companies and economists have warned the longer the war goes on, the more likely inflation is to bleed into non-energy goods and services. BLOOMBERG