Federal Reserve Keeps Interest Rates on Hold
Yesterday, Jerome Powell, the Federal Reserve Chairman, officiated at his last FOMC (Federal Open Market Committee) meeting where benchmark interest rates were kept on hold for a third consecutive time at 3.50% – 3.750%. The increasing uncertainty with the Middle East crisis left the committee deeply divided voting by 8 – 4 to keep interest rates steady. This was the first time since October 1992 where four committee members dissented against the FOMC decision, with Governor Stephen Moran voting in favour of a 25 basis point cut.
Three other Federal Reserve Presidents: Beth Hammack, Neel Kashkari and Lorie Logan of Cleveland, Minneapolis and Dallas respectively, all agreed to hold rates but dissented because they “could not support inclusion of an easing bias in the statement at this time”. Experts suggest that the dissents caught financial markets by surprise, and despite the nomination by President Trump of dove leaning Kevin Warsh* as the new Fed Chair, the vote could indicate a shift away from rate cuts at future meetings.
*Kevin Warsh – He has passed a major hurdle to become the next Chairman of the federal reserve, as yesterday, he was approved by the Senate Banking Committee. The nomination now advances to a full senate vote with the earliest date being the 11th May 2026.
Analysts advise that money markets are betting that there will be no further rate cuts in 2026. However, analysts now suggest a better than 25% chance of a rate hike by early next year. This shift comes as oil prices climb back above $100/bbl, driven by the ongoing Middle East conflict and the continued blockade of the Strait of Hormuz, a chokepoint for 25% of the world’s oil. Experts advise the big fear for policymakers is that the current energy-driven price shock feeds into a broader, more consistent core inflation.
On that note, US headline inflation for March 2026 jumped to 3.30%, the highest level since May 2024. Core inflation (excluding food and energy) also rose slightly to 2.60%, with policymakers still adopting a wait and see attitude towards inflation. However, on the employment front, the unemployment rate for now appears to have stabilised, but net hiring flattened out to just about zero over the past year. Experts and policymakers are suggesting this would make the labour market more vulnerable to shocks.
Finally, Chairman Powell’s tenure as the Chair of the Federal reserve ends on 15th May 2026, but under current rules he can remain on the board until January 2028. Historically, Fed Chairs typically resign from the Board of Governors entirely upon leaving the chair. However, Jerome Powell has opted to remain on the board, a decision that prevents President Trump from appointing a new governor who might align more closely with White House policies. Chairman Powell noted, “I plan to keep a low profile as a governor. There is only ever one chair of the Federal Reserve Board. When Kevin Warsh is confirmed and sworn in, he will be that chair”.
