–Powell: To Stay on Fed Board After Warsh Becomes Chair
–Four FOMC Participants Dissented, Three of Them Against Inclusion of Easing Bias
– Powell: Monetary Policy ‘In Good Place’ To ‘Wait and See’
– Powell: Before Tightening Bias, FOMC Would First Move To ‘Neutral’ Forward Guidance
By Steven K. Beckner
(MaceNews) – The Federal Reserve’s policymaking Federal Open Market Committee left the short-term interest rates it controls unchanged Wednesday, and for the time being it made no change in its “forward guidance” on the future path of rates.
Even though the war against Iran has been pushing up oil and in turn gasoline and other prices, the FOMC continued to signal that its next rate move will most likely be to resume cutting rates at some point, contrary to the expectations of some observers that the Committee might drop the easing bias it has maintained since early December.
However, the FOMC’s policy statement revealed, uncharacteristically, that there was considerable sentiment for removing the easing bias, and Fed Chairman Jerome Powell said “the center is moving” in the direction of symmetrical forward guidance that would open the door to a potential rate hike.
For now, faced with extraordinary uncertainties and risks on both sides of its dual mandate, Powell said he and his FOMC colleagues believe monetary policy is “in a good place” to “wait and see” how economic developments emerge and how the balance of risks to its “price stability” and “maximum employment” mandates evolve.
So they left the federal funds rate in a target range of 3.50-3.75% for a third straight meeting, after cutting that key money market rate by 75 basis points in the final three meetings of 2025 and 175 basis points since September 2024.
Only Governor Stephen Miran dissented, once more, in favor of an immediate 25 basis point rate cut, but three other FOMC members who supported leaving the funds rate unchanged did not support the retention of an easing bias in the policy statement.
Powell, speaking to reporters after what was almost certainly his last two-day monetary policy meeting as chairman, said he and a majority of the 12 FOMC voters felt “no rush” to change policy signals, but suggested that could happen at the next meeting in June.
If inflation risks were to intensify, the FOMC might have to move to a tightening bias,” but before doing that, it would first adopt a “neutral” (or symmetical) statement, said Powell, who vowed to stay on as a regular Fed governor after his term as chairman expires on May 15.
Fed policymakers met in difficult circumstances. Even as they waited hopefully for the impact of President Trump’s tariff hikes to fade, his attack on Iran to eliminate its nuclear ambitions presented another wave of adverse economic consequences. The war-related spike in the cost of oil is simultaneously putting upward pressure on prices and threatening to hurt growth and employment – “stagflation” as some have termed it.
The war, with its twists and turns, surprises and disappointments, has added another layer of complexity to Fed decision-making, as the FOMC statement acknowledged.
As at its March 17-18 meeting, the FOMC left the federal funds rate in a target range of 3.50-3.75%, after cutting that key money market rate by 75 basis points in the final three meetings of 2025 and 175 basis points since September 2024.
In their revised Summary of Economic Projections, the 19 FOMC participants projected a single 25 basis point rate cut by the end of 2026, which would take the funds rate down to a target range of 3.25% to 3.50% (a median 3.4%). But Fed watchers have become increasingly dubious whether the FOMC will be able to cut the funds rate at all, and some speculate that the Fed’s next move could be a rate hike.
The FOMC will not compile another SEP until its June 16-17 meeting.
In its policy statement, the FOMC made little change to its characterization of economic conditions, again calling economic activity “solid,” job gains “low,” unemployment “little changed” and inflation “elevated.” But the statement put heightened emphasis on the impact of the war,
“Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook,” the FOMC declared before repeating that it is “attentive to the risks to both sides of its dual mandate.”
There was evidently an intense debate over the phrasing of the “forward guidance” paragraph of the policy statement, with a sizable minority arguing in favor of removing the easing bias that had been in place since the FOMC’s last rate cut.
Starting on Dec. 10, 2025, when it made its third straight rate cut and began an indefinite pause, and continuing in its Jan. 28 and March 18 statements, the FOMC said, “In considering the extent and timing of additional adjustments to the target range for the federal funds rate,”
That language has been widely interpreted as assymmetrical, implying that the FOMC would go back to cutting rates at some point. In recent months, there has been mounting talk among Fed officials that the FOMC’s next move might need to be a rate hike if oil-related inflation pressures persisted, leading to speculation that the FOMC might remove this implicit easing bias.
And indeed, in a rare disclosure, the rate announcement reveals that there was strong sentiment for doing just that: “Beth M. Hammack, Neel Kashkari, and Lorie K. Logan …. supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.”
Although the reiterated wording does not rule out an eventual rate hike, it strongly suggests a resumption of rate cuts is more likely, but it leaves in doubt how long the pause in rate cuts will last.
Asked about the unusually public revelation of policy disagreement, Powell acknowledged that “We had quite a vigorous discussion about that issue and the guidance and is it still appropriate and that kind of thing.”
“I would say the number of people on the Committee who either could support that language change, changing to a more neutral stance so that a hike is likely as a cut, that number has increased over the intermeeting period,” he continued.
“It’s easy to see why,” Powell added, noting that inflation has been moving “in the wrong direction. And we know that … there’s headline inflation coming out of the (Persian) Gulf and we don’t know how much that will be. We just, we’re going to need to see.”
“So it makes all the sense in the world people would look at that and we’d have a vigorous discussion about that,” he went on.
Although all but Miran agreed on leaving the funds rate unchanged at this meeting, three wanted to remove the easing bias, but Powell said “the majority of the Committee did not want to do that,” and he said he was among those who “didn’t think we needed to do it this meeting.”
“It really was just a question of why do we need to do that now,” he elaborated. “We have so much to learn. There’s so much uncertainly about the path ahead. There doesn’t need to be any rush to make that decision now, because … what happens in the next thirty, sixty days, even by the next meeting could really change the picture around that language.”
Powell said the debate over whether to remove the easing bias was “a much closer thing” than at the March FOMC meeting, and he added, “it’s gotten to be a better question in the interim period …. . A majority are still on the page of not feeling the need to move to that level, and that’s where I am.”
But he said he “get(s) it, though. You know, at a certain point you would move. And that conceivably could come as soon as the next meeting.”
Responding to another question about the internal Fed argument over abandoning the easing bias, Powell said, “the center is moving toward a more neutral place.”
But he suggested the FOMC should proceed cautiously about changing its forward guidance. “I just think, you know, there’s a lot of signaling going on when you change guidance like that. And so we just — I guess the majority, a majority of us didn’t feel like we needed to send a signal on that right now.”
“But maybe it will come to that,” Powell continued. “And the reason is because, you know, we’re kind of waiting to see what happens with events in the Middle East and what are the implications of those events for the U.S. economy. So there is a group who feels like we don’t need to be in a hurry to do tha.”
The outgoing Fed chief suggested the FOMC should move incrementally. “Of course we will move to a hike in bias if we want a hike. And we’ll move to a neutral bias before that.”
Although there was dissensions about the policy bias, Powell suggested there is little disagreement (outside of Miran) on the appropriateness of the current policy stance.
“Fortunately, we’re in a good place to wait and let things develop,” he said,
“We really think our policy rate is in a good place,” he said at another point. “If we need to hike, we will certainly signal that and we will certainly do it. If we need to cut then if it’s appropriate to cut we’ll signal the opposite.”
“I think because we feel like we’re in a good place to move in either direction, nobody’s calling for a hike right now,” he continued. “So it really is going to depend on how things evolve.”
At another point, Powell said, “We’re going to have to wait and see … . The good news is we think our policy stance is in a very good place for us to wait and see.”
In the current target range, the funds rate is “at the high end of neutral or perhaps mildly restrictive.”
“The labor market shows more and more signs of stability, whereas inflation is kind of misbehaving,” Powell continued, “So maybe a little bit of restriction or the high end of neutral is the right place to be. So we can wait here and see how things work out before we act.”
Powell gave no indication that monetary policy needs to be eased anytime soon. “I think pretty close to the neutral rate, …. at the higher end of the range what I would consider reasonable neutral rate.”
With the labor market “cooling off just a little bit,” he said, “I don’t think there’s much of a case for, any case really for policy looking fully restrictive. Maybe mildly or neutral I would say.”
Powell was careful to observe that the oil price spike can impact both sides of the Fed’s dual mandate. “Remember when gas prices go up, that’s disposable income coming out of people’s pockets so they’re going to spend less on other things. So there will be a hit to GDP. So it’s a question whether spending … goes down to offset the inflationary effects. So …. the answer isn’t obvious ex-ante whether you should move the rate because of that. We’ll have to see how it evolves.”
Leading up to their meeting, FOMC participants got a look at a mixture of data which showed “unusual crosscurrents in the economy, as New York Fed President and FOMC Vice Chairman John Williams has put it.
On the inflation side of the Fed’s dual mandate, the Consumer Price Index (CPI) jumped 0.9% in March or 3.3% from a year earlier. The core CPI was better behaved, rising 0.2% for the month and 2.7% year-over-year.
The Fed’s “beige book” survey of economic conditions in the 12 Fed districts found that “price growth mostly remained moderate overall, with the vast majority of Districts reporting moderate increases and others pointing to modest growth. Generally, input cost increases outpaced selling price growth, compressing margins.”
On the employment side, the Fed has so far not seen any alarming developments. Although GDP growth has slowed, and although employers are not hiring at the rate they were a year ago, most labor market measures have so far remained within acceptable bounds. In March, non-farm payrolls grew a surprising 178,000, and the unemployment rate dipped a tenth to 4.3%.
The beige book reported that “on balance, employment was steady to up slightly during this reporting period, though one District noted a slight decline.” The Atlanta Fed has lowered its GDPNow first quarter growth forecast to 1.2%, from as high as 3.1%.
Such data have prompted Fed officials such as San Francisco Federal Reserve Bank Mary Daly to say recently that the economy is “in a good place,” reinforcing the belief that the economy is not in urgent need of additional stimulus. Powell repeatedly echoed that sentiment Wednesday.
This was the last FOMC meeting to be chaired by Powell, as he told reporters, but not his last a voting member.
Last Friday, the Justice Department dropped its criminal probe into Powell, prompting hold-out Republican Senator Thom Tillis, R-NC., to drop his opposition to President’s Trump nomination of Kevin Warsh to succeed him. As the FOMC began its second day of discussions Wednesday morning, the Senate Banking Committee approved the Warsh nomination on a party-line vote, clearing the way for the full Senate to confirm him, presumably in time to take over when Powell’s term as chairman expires on May 15 and to chair the FOMC’s next scheduled meeting June 16-17.
However, Powell is not going away quite yet. After flirting with the idea previously, he announced Wednesday, “After my term as chair ends on May 15th I will continue to serves as a governor for a period of time to be determined.”
He vowed to “keep a low profile as a governor.”
Asked whether he might continue to exercise influence as a “shadow chairman,” Powell replied, “That’s something I would never do …. . I don’t know what the exact specifics of it will be, but I’m going back to being a governor. I respect the role of Chair.”
Having served as a governor under Chairmen Ben Bernanke and Janet Yellen, he said, “I had real sympathy for how hard it is to get that group to consensus. And I always felt like, you know, I don’t want to add to that unnecessarily …. . I propose to be a very constructive participant in that process really out of respect for the office of the Chair.“
Powell did not say how long he will stay as governor, but said he “will not leave the Board until this investigation is well and truly over with transparency and finality.”