- The FOMC Voted 10-2 to hold rates steady at the January meeting.
- Powell stated that rates are currently within the plausible range of neutral.
- President Trump nominated Kevin Warsh as the next Fed Chairman.
Recent headlines surrounding the Federal Reserve have varied. On the monetary policy front, macroeconomic conditions appear solid, with tariff-driven inflation concerns largely overstated and unemployment holding steady. Away from economic fundamentals, Chair Powell continues to face political pressure as his term as Fed Chair nears its conclusion.
The Federal Reserve held its first meeting of the year on Wednesday—officials voted 10-2 to hold rates steady in the 3.50%–3.75% range. Fed Governors Waller and Miran dissented from consensus in favor of a 25 bp cut. Waller’s dissent may have been viewed as a last-ditch effort to appease the president, who at the time was still considering possible nominations for the upcoming Fed Chair. In a slightly hawkish tilt, committee members removed previous language from their statement that had noted “downside risks to employment rose in recent months,” and upgraded their view of the economy to say available indicators suggest economic activity “has been expanding at a solid pace.”
Fed Chair Powell was strictly business in his press conference, commenting solely on macroeconomic conditions. Powell stated that interest rates right now are appropriate to promote progress toward both of the Fed’s goals, achieving maximum employment and price stability. Powell noted that labor demand has “clearly softened” alongside slower gains in the supply of workers. Other job market indicators, like job openings and layoffs, show little change recently. On inflation, Powell stated that while goods’ inflation is higher because of tariffs, disinflation in the services sector continues. The Fed sees well-anchored inflation expectations as key to its ability to achieve stable prices over the long term. Powell stated the Fed’s current setting is within the plausible range of neutral, repeating his sentiment from the prior Federal Open Market Committee (FOMC) meeting. Overall, Powell’s comments suggest that the committee is broadly comfortable with the current state of the U.S. economy and looks prepared to pause monetary policy changes for the near future. The tone of the press conference shifted throughout the Q&A, as many questions focused more on political issues than on macroeconomic policy. When pressed on Treasury Secretary Bessent’s recent criticism of Powell’s attendance at the Supreme Court’s oral arguments in Governor Lisa Cook’s case, Powell defended his appearance by citing precedent from Fed Chair Paul Volcker, and then very clearly pivoted to a “no comment” position. On questions relating to the Department of Justice (DOJ) probe, his thoughts on staying on at the Fed after his term as Chair is up, or even on the strength of the dollar, Powell’s only response was, “I have nothing further for you on that today.” His only substantive remark on political matters came in the form of his reaffirmation of the value of central bank independence, noting that because monetary policy can influence the economy during election cycles in ways that may appear politically advantageous, maintaining an independent central bank remains a foundational principal across advanced economies. However, when the discussion returned to economic fundamentals, Powell engaged more freely and with a slightly hawkish tilt, re-anchoring the session and providing some market guidance after a stretch dominated by political questioning.
On Friday, President Trump announced that he would nominate Kevin Warsh to be the next chairman of the Federal Reserve. Warsh served on the Fed’s board of governors from 2006 to 2011, playing crucial behind-the-scenes roles in Washington’s rescue of Wall Street during the financial crisis. During his time at the Fed, Warsh was consistently wary of inflation and often supported higher interest rates. Last year, however, he aligned himself with Trump’s view that rates could be lower. “I have known Kevin for a long period of time and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is ‘central casting,’ and he will never let you down,” Trump said. If confirmed by the Senate, he would succeed Jerome Powell, whose term as chair expires in mid-May. While a change in leadership could influence the tone at the institution, it does not guarantee a shift in policy at the Fed. Interest rates are set by a majority vote of the 12-member Federal Open Market Committee, which is composed of seven Fed governors and five of the 12 presidents of regional Fed banks.
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