On Wednesday, the Federal Reserve held steady on interest rates for the third consecutive time, with several key policymakers expressing apprehension regarding persistent high energy costs fueled by the conflict between the US and Israel with Iran.
The Fed officials maintained the benchmark lending rate within the 3.5-3.75% band during Jerome Powell’s final meeting as Chair before his tenure concludes on May 15th.
At his post-meeting news conference, Powell confirmed his departure from the Chair role, though he will remain on the influential board of governors of the U.S. central bank. He is currently serving as Fed head until January 2028. Powell also highlighted the ongoing ambiguity surrounding the war with Iran and the growing division within the 12-member rate-setting Fed committee.
Kevin Warsh, President Donald Trump’s nominee to succeed Powell, is widely anticipated to advocate for further rate reductions this year. Earlier on Wednesday, he cleared a major hurdle in his confirmation process, firmly setting him on a path to potentially hold one of the world’s most significant economic positions. His nomination is expected to move to the broader Senate floor for a final vote.
Nevertheless, despite Warsh potentially favoring rate cuts, there is currently no compelling economic basis in sight to justify easing monetary policy—a sentiment voiced by three key Fed voters at this gathering.
The decision to maintain the status quo was nearly unanimous, with only Fed Governor Stephen Miran dissenting in favor of lower rates than the majority desires, marking the sixth consecutive meeting with a divergence.
However, Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lori Logan “did not support including any easing bias in the statement at this time.”
Powell on Internal Fed Disagreements
This latest wave of dissent underscores the difficulty Warsh will face, should he be confirmed, in persuading the majority of the 12-member rate-setting committee to agree on rate reductions.
This marks the first instance since October 1992 that there have been four dissents of any kind.
Powell indicated that the dissents reflect “lively” discussions during the meeting, emphasizing that more members wanted the policy statement to project a “neutral stance, such that an increase was as likely as a cut.”
For a variety of reasons, justifying an early rate cut poses a challenge for any Fed official: energy prices remain elevated due to the Iran conflict; Americans continue spending, bolstering corporate profits; the US labor market is tight but appears to have stabilized; and the Fed Chair does not wield unilateral authority over the U.S. central bank’s rate decisions.
“These are genuinely complex and difficult decisions,” Powell observed. “You have to have a forecast for every variable, consider how long it will take to return to target, you have to consider how restrictive policy is, so it’s natural that there are differing opinions within the committee.”
Federal Reserve Chair Jerome Powell testifies before the Senate Banking, Housing, and Urban Affairs Committee during a hearing on “Reviewing the Semi-Annual Monetary Policy Report to Congress” on Capitol Hill on June 25, 2025, in Washington, D.C. Powell states the central bank will await clearer economic signals on the impact of President Donald Trump’s tariffs before easing interest rates, despite pressure from the president and internal disagreements among Fed officials.
Federal Reserve Chair Jerome Powell testifies before the Senate Banking, Housing, and Urban Affairs Committee during a hearing on “Reviewing the Semi-Annual Monetary Policy Report to Congress” on Capitol Hill on June 25, 2025, in Washington, D.C. Powell states the central bank will await clearer economic signals on the impact of President Donald Trump’s tariffs before easing interest rates, despite pressure from the president and disagreements among Fed officials.
The Fed Keeps Rates Steady as Powell Nears End of Chair Term
Typically, the Fed lowers borrowing costs if inflation decelerates, unemployment rises (and threatens to climb further), or a combination of the two—neither is currently happening. This allows Fed policymakers the latitude to be cautious, waiting on the sidelines to observe developments before deciding on a rate hike or cut, as some officials noted in recent public remarks, particularly those who dissented this week.
While the Fed Chair holds considerable sway by controlling the agenda for every Fed meeting, he possesses only one vote within the consensus-driven committee.
“As a future former Chair, I understand how challenging it is to build consensus with nineteen strong individuals,” Powell remarked. The committee comprises 12 voting members, with six others non-voting but participating in deliberations.
Powell on His Future
Powell will be the first Fed Chair to remain on the board since 1948, when Marriner Eccles stayed on as a Fed Governor for an additional three years.
“This is my final press conference as Chair,” Powell stated, “and I’ll conclude with a few thoughts.”
“First, I want to congratulate Kevin Warsh on his advancement out of the Senate Banking Committee this morning. It’s a significant step forward, and I wish him well in that process.”
Powell specified that his decision was influenced by the possibility of the Department of Justice resuming its investigation and his testimony before Congress last year regarding the central bank’s headquarters renovation project. D.C. Federal Prosecutor Janeen Pirro, whose office is leading the inquiry, stated last week that she would “not hesitate to reopen a criminal investigation if the facts warrant it.”
“I am waiting for the investigation to conclude definitively and transparently,” Powell said. “And I look forward to that. And I will leave when I deem it appropriate.”
Powell on the Middle East Conflict and its Economic Repercussions
Powell echoed what several other Fed officials have recently stated: the war with Iran complicates determining the trajectory for interest rates.
The latest Fed statement acknowledged this precisely, noting that “developments in the Middle East are contributing to a high level of uncertainty regarding the economic outlook.”
“We are sort of waiting to see what happens with the Middle East events and what the implications of those events are for the U.S. economy,” Powell commented. “There is a cohort that believes we do not need to rush to do that.”
Powell added that “certainly, we would move to a hike if we wanted a hike,” though he stressed the Fed is not close to raising rates presently.
“People are not saying we need to hike right now,” he said. “But it is a perfectly respectable debate.”
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