Fed Holds Interest Rates Steady; Biden Renominates Powell

The Federal Reserve held interest rates steady at around 3.6% during its latest meeting, marking the third consecutive hold amid persistent inflation above the 2% target. Chair Jerome Powell, in his final press conference as leader, announced he will remain on the board of governors after his term as chair expires on May 15, 2026.

This decision breaks with tradition, as Powell cited concerns over legal attacks threatening the Fed's ability to conduct policy without political interference. The meeting saw a notably high number of dissents, with Cleveland Fed President Beth Hammack, Minnesota Fed President Neel Kashkari, and Dallas Fed President Lorie Logan objecting to language in the post-meeting statement that implied an easing bias.

Fed Governor Christopher Waller also shifted to a more hawkish stance, warning that repeated economic shocks could embed higher inflation.

Powell expressed worry that attacks on the Fed are battering the institution, stating his intent to stay until an investigation into the Fed’s headquarters renovation is complete. His term as governor extends to January 2028, though he may not serve the full duration. This situation echoes 1948, when Marriner Eccles resigned as chairman but remained on the board until 1951.

“My concern is really about the series of legal attacks on the Fed, which threaten our ability to conduct monetary policy without considering political factors," Powell told reporters. President Trump criticized Powell's decision on social media, posting that Powell wants to stay because he can’t get a job elsewhere. Trump appointed Powell in 2017 but has feuded with him over rate policies during his first term.”

The Senate Banking Committee advanced Kevin Warsh’s nomination as the next Fed chair on a 13-11 party-line vote, the first such partisan split for a Fed chair nomination. Warsh, a former Fed governor from 2006 to 2011, pledged a “regime change” including ending forward guidance and the dot plot.

Fed Governor Stephen Miran, appointed by Trump last year and a proponent of immediate rate cuts, will step down to make room for Warsh. This shift removes a dovish voice from the committee, potentially aiding Warsh in building consensus amid hawkish signals from other members.

Skanda Amarnath, executive director of Employ America, said Warsh missed opportunities to demonstrate independence.

Inflation has remained above the Fed’s 2% target for five years, driven by successive shocks including COVID-related supply issues, Russia’s 2022 invasion of Ukraine, Trump’s tariffs, a collapse in net immigration, and the ongoing war with Iran closing the Strait of Hormuz.

Waller highlighted the risks of “looking through” these shocks if they persist, potentially requiring rates to stay elevated. Powell noted the difficulty in responding to energy shocks, which tend to be short-lived, but acknowledged caution given years of high inflation and recent tariff impacts.

The committee's statement removed phrasing suggesting additional adjustments, reflecting dissents against an easing bias.

“While intellectually it makes sense to look through each shock, with a sequence of shocks, policymakers need to be more vigilant," Waller said in a speech last month.”

Warsh faces pressure from President Trump, who has called for rates as low as 1%, amid elevated inflation at 3.3%—its highest in two years due to energy shocks. Sahm warned that Warsh’s vague monetary framework and criticism of data-dependence could complicate his tenure.

Analysts noted Warsh’s past speeches criticizing Fed consensus and models, but Sahm described them as lacking detail. With Miran’s departure, the FOMC loses its strongest advocate for immediate cuts, potentially strengthening hawkish voices like Kashkari and Logan.

The Justice Department recently dropped an investigation into Powell, clearing Warsh’s path, but Sahm predicted ongoing White House pressure on the Fed. Warsh indicated he would not commit to press conferences after every meeting, diverging from Powell’s practice.