At the end of two days of discussions in Washington, the monetary committee of the American central bank, the Federal Reserve, has just announced that the interest rate in the country will remain unchanged this time, at 3.75%, as in the two previous interest rate decisions. In 30 minutes, at the press conference, Powell will explain the decision. No predictions will be given tonight.
The decision, which did not surprise anyone, was made against the background of high energy prices and a central bank that has been above its inflation target, 2%, for five years, this at the same time as a weak labor market, but not one that is in distress – not a recipe for monetary easing at this stage.
Fed officials updated the wording of their announcement and noted that “the developments in the Middle East contribute to a high level of uncertainty regarding the economic outlook.” Earlier they said that the consequences of the conflict on the economy are uncertain. The executives also repeated the wording referring to the “scope and timing of further adjustments” in the interest rate.
The policy meeting also revealed a deepening of the disputes against the background of the increase in uncertainty caused by the war.
Cleveland Fed President Beth Mack, Minneapolis Fed President Neal Keshari and Dallas Fed President Lori Logan “supported leaving the target range of the interest rate unchanged, but did not support the inclusion of an easing bias in the announcement at this stage,” the committee said. Governor Stephen Mirren expressed reservations and supported an interest rate cut of a quarter of a percentage point.
end of an era
The current decision was the last under the leadership of Jerome Powell, who, after eight years, is expected to end his tenure as Fed chairman in mid-May. Powell, who led one of the most aggressive interest rate hike cycles in modern history, is ending a term characterized by a persistent fight against inflation and ongoing conflicts with the political system, and especially with its leader, Donald Trump.
Since the latter took office for a second term, he has been particularly critical of Powell regarding interest rates. Trump repeatedly urged Powell to lower interest rates aggressively, while not using harsh words.
In recent months, Powell’s tenure has been overshadowed by a high-profile legal investigation, which was ultimately closed without findings, a move seen by many as an attempt to put pressure on the central bank. Despite the turmoil, Powell has maintained a consistent line of monetary independence, and the latest decision to leave interest rates unchanged reflects the same cautious approach.
One more decision is enough
While the interest rate decision was no drama, another was resolved today – Powell is not leaving the Board of Governors.
Although Powell’s term as chairman of the Fed ends in a little more than two weeks (May 15), the term of his membership in the Board of Governors only ends in 2028. Traditionally, the chairmen also resign from the average of the governors when their term as chairman ends.
The answer was given at the press conference, Powell said that he will also remain as a member of the Fed’s Board of Governors at least until the legal challenges that the president filed against the central bank are decided. Although Powell’s term as governor allows him to remain at the Fed until the beginning of 2028, this is an unusual situation, since for decades Fed chairmen used to leave the position with the arrival of their replacement.
The move underscores how an unprecedented public campaign to pressure the Fed to lower interest rates has further complicated the handover to former governor Kevin Warsh, Trump’s pick to replace Powell.
“My concern is primarily about the series of legal attacks on the Fed that threaten our ability to conduct monetary policy without regard to political considerations,” Powell said. “I fear that these attacks are damaging the institution.”
Is the grass greener with the new chairman?
Today the Banking Committee of the US Senate approved the nomination of Kevin Warsh to head the Fed, thus paving the way for his election in a final vote in the Senate plenary.
All members of the Democratic Party on the Banking Committee opposed Warsh’s candidacy, and almost all of them were even absent from today’s debate, voting against it by proxy. The senior Senate member of the committee, Senator Elizabeth Warren, who spoke before the vote and then left the hall, again called Warsh a “sock puppet” of the president, and insisted that the investigation into Jerome Powell’s case is not yet complete. According to her, currently there are “uniquely dangerous circumstances for the promotion of any candidate for the presidency of the Fed”, and she defined Warsh as “a candidate who is uniquely unsuitable”.
Trump’s public clashes with the current Fed chairman led the president to name Kevin Warsh as Powell’s successor. While Wall Street and Trump both hope for further interest rate cuts from the Fed under Warsh’s leadership, history suggests that this is not certain.
Warsh, a former member of the Fed’s management, was initially seen as a possible signal for a change in policy direction, mainly in the direction of interest rate cuts. But Kevin Warsh’s voting history as a member of the Monetary Committee in the past may disappoint. Warsh served on the Fed’s Board of Governors from 2006 to 2011 and played an integral role in steering the ship during the 2008 crisis, while most voting members pushed for lower interest rates. Warsh’s voting history and statements indicate a hawkish approach. Simply put, Trump’s nominee to chair the Fed favored higher interest rates to suppress inflation, even as the unemployment rate soared.
Moreover, Warsh criticized the Fed’s burgeoning balance sheet, which stood at $6.7 trillion as of April 15, 2026. He made it clear that he believes the Fed should be a “passive participant” in the market.
The meaning of this would be the sale of part of the bank’s assets – and here things could get complicated. There is an inverse relationship between bond prices and their yields. If America’s leading financial institution starts selling government bonds and mortgage-backed securities on a large scale, the expected response will be a fall in bond prices and a rise in yields. In other words, shrinking the Fed’s balance sheet will lead to higher interest rates on loans.
Trump won’t like it, neither will investors.
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