By Howard Schneider and Ann Saphir
WASHINGTON, April 29 (Reuters) – Federal Reserve Chair Jerome Powell closed out eight years as head of the U.S. central bank on Wednesday with interest rates on hold, rising concern about inflation, and an announcement that he would stay on as a Fed governor for now to defend the agency’s independence from Trump administration “battering.”
Speaking after the end of a two-day policy meeting, Powell said he would “keep a low profile as a governor,” and did not intend to act as a disruptive “high-profile dissident” under his designated successor, Kevin Warsh, whose nomination to lead the Fed cleared the Senate Banking Committee on Wednesday and could be confirmed by the full Senate as soon as two weeks from now, just before Powell’s term as central bank chief ends on May 15.
Powell said, however, that a series of Trump administration legal actions, from an effort to fire Fed Governor Lisa Cook to a criminal probe of Powell, put the decision-making credibility of the central bank at risk and endangered the “bright line” needed between its decisions on interest rates and the short-term concerns of electoral politics and elected officials.
“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,” Powell said in a press conference, noting that he did not object to President Donald Trump’s frequent demands for rate cuts, but rather to the legal measures taken to seemingly pressure the central bank into approving them.
Powell’s separate term on the Fed’s seven-member Board of Governors runs through January 2028, near the end of Trump’s presidency. Powell said he’d make a future decision about how long to keep his seat.
“I’d like to think we can … go back to respecting what the law says and what custom has been, which is to let the Fed do our thing,” Powell said. “We’re all human. Don’t expect perfection. But do expect us to make decisions without political considerations.”
“Jerome ‘Too Late’ Powell wants to stay at the Fed because he can’t get a job anywhere else – Nobody wants him,” Trump said in a post on Truth Social on Wednesday.
Trump has threatened to fire Powell if he stays on as a Fed governor.
FOUR POLICYMAKERS DISSENT
Powell’s comments about his future and the transition to Warsh’s impending leadership overshadowed both the Fed decision widely expected by financial markets to keep the policy rate in the 3.50%-3.75% range, where it has been since December, and intensifying concern among policymakers about rising inflation that led to their most divided vote since 1992.
Following more than a year in which the Fed was cutting rates and was expected to continue doing so, three of its policymakers on Wednesday dissented because they thought language in the policy statement pointing to an “easing bias” was no longer appropriate given elevated inflation and the massive uncertainty about how the ongoing U.S.-backed war against Iran may affect global oil prices.
A fourth policymaker, Fed Governor Stephen Miran, also dissented in favor of a rate cut, as he has at every meeting since leaving the Trump administration last year to join the central bank. It also likely was Miran’s last meeting as a Fed governor.
U.S. Treasury yields rose to a one-month high and the dollar rose against a basket of currencies after the release of the policy statement. Futures markets were pricing in little chance of a Fed rate cut by the end of this year, and a roughly even chance of a hike by next spring.
Omair Sharif, president of forecasting firm Inflation Insights, said in a note to clients that the fractious policy vote made some level of sense. “The new statement upgraded the concern on inflation,” he said, adding that it is “not surprising” some officials dissented given how inflation has been rising.
LEADERSHIP TRANSITION PROCEEDS
The global price of oil surged on Wednesday to settle at about $118 a barrel amid stalled peace negotiations between the U.S. and Iran, with the average U.S. gasoline price up 40% to almost $4.23 a gallon since the February 28 start of the conflict.
Data released on Thursday is expected to show that the inflation index used by the Fed to set its 2% inflation target increased 3.5% on an annual basis as of March, Powell said, with risks that the combination of import tariffs and high energy costs could feed further into underlying or “core” inflation that would make the central bank’s inflation fight harder.
“The prospects are real … We’re going to have to wait and see,” Powell said, noting that while policymakers were not ready to signal the possibility of rate hikes at this week’s meeting, “the center is moving towards a more neutral place” where an increase in borrowing costs would be given equal weight in policy guidance to a cut.
“There’s a lot of signaling going on when you change guidance like that. I guess the majority of us didn’t feel like we needed to send a signal on that right now. But maybe it’ll come to that,” Powell said in his final press conference as Fed chief.
If that shift is made, it will likely come on Warsh’s watch. He is expected to be sworn in as Powell’s replacement in time to lead the Fed’s June 16-17 meeting, with Trump saying he expects lower rates to follow.
It may be a heavy lift, with investors discounting the likelihood of lower rates until well into 2027, and a growing number boosting bets that rates may need to move higher.
Warsh’s colleagues will need convincing too, particularly the three regional bank presidents – Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan – who “did not support inclusion of an easing bias in the statement at this time” and issued dissents on Wednesday.
(Reporting by Howard Schneider and Michael S. Derby; Editing by Andrea Ricci and Paul Simao)
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