April’s US Federal Reserve rate decision and subsequent press conference were rather interesting – for reasons that had nothing to do with interest rates.

Rate Decision

As had been widely anticipated, in the face of a wobbling job market and renewed inflation fears due to the Middle East conflict, the Fed kept rates steady at 3.5-3.75%. The accompanying statement did imply that cuts are still possible in the future but for now, no cut. This was expected and as a result, not very interesting/surprising.

Dissents

What was interesting was the accompanying statement, which drew dissents from four out of twelve Fed members, the most at a meeting since 1992. Three Fed officials presidents dissented- not because they disagreed with the decision to hold rates steady – but because they wanted to remove the “easing bias” language from the statement and make it clear that the next move in rates could in fact be a hike. (A fourth official – Stephen Miran a Trump appointee and notable dove – advocated for a rate cut)

The three dissents regarding the easing language were very notable as they were widely interpreted as a warning to new Fed Chair Kevin Warsh. President Trump selected Warsh to replace Powell (whom Trump also nominated in his first term) after months of rhetoric pressuring the Fed and Powell to lower rates. In Trump’s mind, the US should have the “lowest interest rates in the world”

While Warsh has not committed to any such rate cutting action and has pledged his commitment to Fed independence, many believe he is perhaps more inclined to cur rates based on Trump’s backing and the related pressure of that support. The dissenting Fed governors seem to sending a not so subtle message that Fed independence remains and that they will not be pressured to “rubber stamp” rate cuts – regardless of Warsh’s agenda

Powell’s Last Stand?

This meeting was Jerome Powell’s last meeting as Chairman of the Federal Reserve and it appears likely that Trump’s nominee Kevin Warsh will soon be confirmed. Typically, when a Chairman retires, they also leave their post as Fed governor.

However, another surprise for the press conference came as Powell made it clear he will in fact remain on the Federal Reserve Board (governor term does not expire until 2028). He expressed that he was staying “for a period of time” and directly linked that decision to the Department of Justice’s lawsuit against him.

While the DOJ did drop the case recently (seemingly as a concession to allow for Warsh’s senate confirmation), they didn’t exactly remove the case completely but rather referred it to the Fed’s Inspector General for further review. Powell is not leaving the Fed until the case is fully resolved, making it clear his belief that this case is an attempt to impact the Fed’s independence (something Powell holds in high regard). “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,” he said. “I worry that these attacks are battering the institution.”

(Side bar: There is much to debate about Powell’s success as Fed chair. Everyone is entitled to an opinion. Interesting analysis I saw this week shows equity returns were +8.3% nominal and +4.7% real (compounded annual growth rate) since 2018. This ranks him above Greenspan and Bernanke but below Yellen and Volcker)

Certainly an existing end to a volatile term for Fed Chair Powell. Warsh’s term will start mid May and we will soon see what – if any – changes take place shortly thereafter.

Onward we go,