On Wednesday, the Federal Reserve opted to keep interest rates unchanged as the central bank navigates preserving its authority to set rates free from political interference.
Officials maintained the benchmark lending rate within the 3.5-3.75% target range, following three consecutive rate reductions late last year. This pause could persist for a while longer, hinted Chairman Jerome Powell during his post-meeting press briefing.
The Fed Chair was less forthcoming regarding his feud with the White House, which he directly addressed earlier this month in a striking video criticizing President Donald Trump.
The decision to hold steady was not unanimous: Fed Governors Stephen Miran and Christopher Waller—both Trump appointees—voiced dissent in favor of a quarter-point cut. Waller is among the four contenders for the Fed Chair position when Powell’s term concludes in May. Previously, Waller’s dissents favoring rate reductions were viewed favorably by the Trump administration.
Powell on a “Solid” Economic Outlook
President Donald Trump announced this week his intention to declare his candidacy for Fed Chairman “quite soon.” This long-anticipated choice will finalize a months-long search process that at one point considered roughly a dozen candidates for the most powerful role in global finance.
Trump’s selection for Fed Chair is arguably Wall Street’s most pressing issue, given that Powell has only two meetings left, and markets are not pricing in a rate cut until summer.
Nevertheless, Powell provided insight into the general stance the committee takes when assessing monetary policy prospects, suggesting no immediate need for rate reductions.
“I think, and many of my colleagues believe, it’s hard to look at the incoming data and argue that policy is significantly restrictive right now,” Powell told reporters. In other words, cutting rates now seems unnecessary because the economy appears to be holding up well.
The Fed’s latest statement essentially endorsed another pause, characterizing economic growth as “solid”—an upgrade from the “moderate” description used in the December statement. Officials also noted that the unemployment rate showed “some signs of leveling out.”
Last year, the Fed lowered rates due to signs of a weakening labor market, as central banks aim to prevent any potential downturn.
Powell’s Advice for the Next Fed Chair
Wall Street anticipates two cuts in 2026—and a key reason is that the next Fed leader is expected to lean toward easing.
“There’s no clear justification for cuts this year, but we know the next Fed Chair will come with a dovish tilt, so there’s a decent chance there will be enough people on the committee to support a couple of cuts,” said Aditya Bhave, Senior U.S. Economist at Bank of America, to CNN. “But it will be difficult for that person to achieve consensus.”
The new central bank head will preside over a divided 12-member rate-setting committee that won’t blindly agree with any proposed course of action. The committee this year has gained new voters who remain concerned about inflation, such as Cleveland Fed President Beth Hammock and Dallas Fed President Lorie Logan.
“This isn’t a one-person committee, it’s a committee of many participants, and many have to decide there’s an economic justification for cutting rates,” commented Tom Porcelli, Chief U.S. Economist at Wells Fargo.
Powell’s counsel to his successor, when asked by CNN’s Matt Egan, was: “Stay away from chosen politics.”
“Our window for democratic accountability is Congress, and it’s not a passive burden for us to go to Congress and communicate with people,” he stated. “It is an affirming, regular obligation. You earn it through your elected overseers, so you need to work hard at it, and I have worked hard at it.”
Powell Reaffirms Importance of Fed Independence
Powell deflected several reporter questions regarding the federal investigation and anything related to politics, effectively adhering to his approach of remaining neutral.
However, he did justify his presence at the oral arguments this month concerning Federal Reserve Governor Lisa Cook, who is challenging Trump’s effort to remove her from the influential central bank board over unsubstantiated mortgage fraud allegations.
“I thought it would be difficult to explain why I didn’t show up,” Powell said. “Also, (former Fed Chair) Paul Volcker had a famous Supreme Court case around 1985, so that set a precedent; I considered it appropriate.”
A ruling against Cook would be widely seen as a fatal blow to the Fed’s political independence, which Powell again defended in his latest remarks, saying it “serves the people well.”
Yet, the nation’s top court’s conservative justices seemed skeptical of the administration’s arguments for removing Cook and wished to keep her in office while the legal battle proceeds.
Among them was Justice Brett Kavanaugh, Trump’s second Supreme Court appointee. He warned that future presidents could conditionally define “cause” for firing Fed officials they disagree with if the Trump v. Cook case sets such a precedent.
“What goes around comes around,” Kavanaugh told U.S. Solicitor General D. John Sauer, pointing out how a future Democratic president might utilize “trivial, minor, or old allegations that are very hard to refute” to oust Trump appointees.
“Once those tools are freed up,” Kavanaugh noted, “they will be used by both sides.”
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