The US Federal Reserve announced it had decided to hold rates steady, thus matching market expectations. What was interesting this time was the number of dissenters regarding a policy leaning toward easing going forward.
The FOMC decided to maintain the target range for the federal funds rate at 3.5% to 3.75%.
Voting to hold rates steady were Chair Jerome Powell, John Williams, Michael Barr, Michelle Bowman, Lisa D. Cook, Philip Jefferson, Anna Paulson, and Christopher Waller.
Voting against the decision were Stephen Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Beth Hammack, Neel Kashkari, and Lorie Logan supported holding rates steady but did not support including an easing bias in the statement at this time.
While employment has held steady, inflation has ticked up, with the annual inflation rate in the US at 3.3% for the 12 months ending March, up from 2.4% previously.
The war in the Gulf has driven oil prices higher, which can drive prices of all goods and services higher. The tariff and economic environments can be difficult to decipher. If the conflict with Iran lingers, inflation could move higher.
Recently, Kevin Warsh was approved by the Senate Banking Committee to serve as the new Chair of the Fed. There is some expectation that Warsh is inclined to lower interest rates, yet markets have already signaled a preference for higher rates.
Part of the challenge is a White House that wants the cost of living to go down, especially in the housing/mortgage market. But markets do their thing and do not necessarily listen to political proclamations, and many indicators point to rising inflation.
Powell, who has been criticized by President Trump for keeping rates high, including an unfortunate investigation by the US Department of Justice regarding cost overruns for Fed renovations, has put the current Chair on the defensive. During the press event following the rate decision, much discussion focused on the importance of Fed independence.
While Warsh has declared that President Trump understands the importance of Fed independence, the President’s past demands belie a potentially challenging relationship between the White House and the central bank.
