In Jerome Powell’s last meeting as Fed Chair, the FOMC held on rates while issuing a statement with the largest number of dissenters in more than thirty years. Geopolitics – beyond the Fed’s control – have added to economic uncertainty and cloud the outlook as Fed Chair nominee Kevin Warsh (who this morning won the backing of the Senate Banking Committee and will now head to the Senate for final confirmation) looks almost certain to take the reins in just over two weeks.
Starting with the statement, there were two notable wording changes today. First, language was added that inflation “is elevated, in part reflecting the recent increase in global energy prices.” The second change was a modification of language from the March statement, noting that developments in the Middle East are “contributing to a high level of uncertainty about the economic outlook.” Neither of those changes are surprising given recent comments from FOMC members, but what was a surprise was the number of dissenters to today’s release. Governor Miran once again dissented in preference for a ¼ percentage point rate cut, while regional presidents Beth Hammack, Neel Kashkari, and Lorie Logan all supported keeping rates unchanged but “did not support inclusion of an easing bias in the statement at this time.” More on that shortly.
The press conference brought the biggest news. Powell concluded his opening remarks by confirming that while his term as Chair will end on May 15th, he will be staying on at the Fed as a governor for the foreseeable future. Yes, the Department of Justice probe of Powell was dropped less than a week ago, and the DOJ also stated that the case would not be reopened unless there was a criminal referral by the Federal Reserve’s Inspector General, but Powell will remain at the Fed until he believes that investigations are well and truly over.
This creates an unusual situation that will play out over the weeks (months?) ahead. With Warsh taking the helm but Powell still present it threatens to create a fractured FOMC. Prior chairs have historically stepped away from the Fed with time remaining on their position as a board governor specifically to avoid putting the new chair in such a compromising position, and some will see Powell’s decision as a political statement. Only time will tell how long this will last, but if Powell remains on through the next FOMC meeting in mid-June, you can be sure this dynamic will be one of the first questions to come up at that press conference.
Read more: GDP: Mediocre Top-Line, Weaker Details
