By: Michael Sellers
Partner, Portfolio Manager
In a widely expected decision, the Federal Reserve’s Federal Open Market Committee concluded its April meeting on Wednesday by holding interest rates steady, maintaining its current range of 3.50-3.75%. The decision reinforces the FOMC’s ongoing “wait and see” posture as it navigates a still-muddled economic backdrop.
Notably, this was Jerome Powell’s last meeting as Chairman, with his term set to expire on May 15.
Source: The Wall Street Journal
Powell's Latest Press Conference
During his post-meeting press conference, Powell said he would “continue to serve as a governor for a period of time, to be determined.”While this is an unprecedented decision, one previous Fed chairs haven’t made in decades, it is in response to the criminal probe opened by the Justice Department in January into cost overruns incurred during ongoing renovations to the Fed’s headquarters.
Last week, the DOJ closed its investigation, however US Attorney General Jeanine Pirro released a statement last Friday saying she reserves the right to “restart a criminal investigation should the facts warrant doing so.”
Powell elaborated on his decision to stay on the Federal Reserve Board as a governor, saying:
“I will not leave the Board until this investigation is well and truly over, with transparency and finality, and I stand by that. I am encouraged by recent developments, and I am watching the remaining steps in this process carefully.”
Powell’s term as governor allows him to remain at the Fed until early 2028. President Trump has repeatedly threatened to fire Powell if he doesn’t completely step down from the Fed after May 15.
The April FOMC Meeting Vote Breakdown
Wednesday’s vote to keep interest rates unchanged was 8-4. As expected, Governor Stephen Miran voted for a 25 basis point cut and was the only member in favor of a cut.While it was the most dissents in a policy meeting since 1992, the other three votes were not dissenting to the rate decision but to language around future rate decisions.
The three votes from Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan reflected an opposition to language in the Fed’s official statement that suggested a bias toward lowering rates.
Wednesday’s meeting underscores the challenges presumptive incoming Fed Chair Kevin Warsh will face when he takes over in May. President Trump has made his preference for rate cuts abundantly clear, while Powell noted a growing number in the FOMC wanting the policy statement to communicate a more “neutral stance, so that a hike is as likely as a cut.”
CME MarketWatch has a 89% probability that the fed funds rate will remain unchanged through December of this year.
The Three Main Takeaways For Investors
For investors, there are three key takeaways from this meeting. One is that the Powell-Trump dynamic will likely continue even after Powell’s term as Fed Chair. Powell has made it clear that he is not comfortable leaving the Fed amid any political or legal uncertainty, while President Trump has been equally clear he wants Powell out after May 15. This tension is unlikely to fade anytime soon.Two, the number of opposing votes to the Fed’s policy language illustrates the growing divide within the Fed. While the financial markets have been generally signaling that any oil-related inflationary spike will be temporary (or transitory), the Fed seems to be less convinced. From its point of view, the Iranian conflict muddles both the near- and long-term inflationary outlook. The Fed is signaling a more cautious tone and a greater reluctance to make a policy move in the face of increased and/or prolonged geopolitical uncertainty.
Three, Kevin Warsh is stepping into a particularly challenging position. The Iranian conflict is entering its third month, and the US economy has proved to be resilient in the short term. The longer-term outlook is becoming more muddled, and that is causing a more cautious “wait-and-see” approach from a growing constituency on the FOMC board.
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