Fed holds interest rates steady for third straight meeting, as Powell vows to remain as governor

Federal Reserve Chair Jerome Powell said on Wednesday that he plans to remain as a board governor after his term ends in May, announcing the move after the central bank again left its benchmark interest rate unchanged amid rising inflation due to the Iran war.

Powell had previously said he would stay on as Fed chair until the Department of Justice ended an investigation into his oversight of renovations of the Fed's Washington, D.C., headquarters, calling the inquiry politically motivated. Jeanine Pirro, U.S. Attorney for the District of Columbia, said on April 24 that her office would end the probe into Powell.

"I'm waiting for the investigation to be well and truly over with transparency and finality," Powell said on Wednesday when asked in a press conference when he would leave his post as a Fed governor. 

It is the first time since 1948 that a Fed chief has opted to carry on as a board governor after his term has ended, according to Capital Economics. 

"The institution is battered"

Powell added that he is concerned about the Fed's ability to maintain its independence amid political challenges, such as President Trump's attempt to fire Federal Reserve Governor Lisa Cook. The Supreme Court is expected to issue a ruling later this year on whether the president has the authority to remove a Federal Reserve official.

"The institution is battered — we have had to go to the courts," Powell said. "It's not over."

Powell said the central bank's ability to set policy without political pressure is essential to maintaining low inflation and full employment, the two sides of the Fed's dual mandate. 

"You want people to make monetary policy and set interest rates to benefit the general public, and focus only on that and ignore political considerations," he said. "This isn't bipartisan — it's nonpartisan."

Mr. Trump — who has lashed out at Powell for months for not backing steep interest rate cuts — reacted to Powell's decision to stick around by mocking the central bank chief.

"Jerome 'Too Late' Powell wants to stay at the Fed because he can't get a job anywhere else — Nobody wants him," the president wrote on Truth Social.

Powell's decision to remain as a Fed governor underlines his commitment to preserving the central bank's independence, noted Bankrate financial analyst Stephen Kates.

"This is a bold departure from the norm of chairs exiting after their chairmanship term ends," Kates said in an email. "Powell has not shied away from facing political and legal pressure head-on, and this move signals that he remains steadfast in his commitment to preserving Fed independence through continued service."

Elevated inflation 

Powell's remarks came as the Fed maintained the federal funds rate — what banks charge each other for short-term loans — in its current range of 3.5% to 3.75%. The decision to keep rates steady was widely expected by investors, with the CME FedWatch tool forecasting a 100% probability that officials would maintain the current rate. 

In explaining its decision to maintain the current rate, the Federal Open Market Committee (FOMC), the Fed's rate-setting panel, cited developments in the Middle East in pointing to "a high level of uncertainty about the economic outlook." The central bank also said "elevated" inflation is tied to the "recent increase in global energy prices."

Kevin Warsh, Mr. Trump's nominee to replace Powell after his term as chair ends on May 15, will inherit a Federal Reserve facing pressures ranging from Mr. Trump's repeated demands for lower interest rates to an inflation reading that jumped last month to its highest level in almost two years. Because interest rate cuts can spur inflation, many economists now predict the Fed will hold off on reductions until later in 2026 or even 2027.

"The FOMC met expectations and held rates steady today," said Atsi Sheth, chief credit officer at Moody's Ratings, in an email. "As the effects of the Middle East conflict become more pronounced, the case for maintaining policy rates rests on rising inflation risks, while risks to U.S. growth appear contained for now."

In its statement, the FOMC reiterated its goal of achieving a 2% annual inflation rate. The Consumer Price Index stood at 3.3% in March.

Powell noted that the central bank believes the current benchmark rate provides flexibility if economic conditions change, although he added that "nobody is calling for a hike right now."

"We feel we're in a good place to move in either direction," he said.

Dissenting members

Four FOMC members dissented from the Fed's statement, with Fed Governor Stephen Miran voting in favor of a 0.25 percentage-point cut. Three other members supported maintaining the current rate, but opposed wording in the statement that signaled a bias toward lowering rates. 

"But it is notable that the press release still refers to the Committee 'considering the extent and timing of additional adjustments' to rates and hence maintains a bias towards further cuts ahead," noted Brian Coulton, chief economist at Fitch Ratings, said in an email. "This wording was clearly a topic of much debate given the oil price shock, with three members deciding not to support the inclusion of an easing bias in the statement."

Asked about the dissents, Powell said that he viewed it as a natural outcome given the challenges facing the economy. 

"We're in an unusually difficult situation," he said. "We've had four supply shocks — the pandemic, the invasion of Ukraine, the tariffs and now Iran and the oil spike."

He added, "Every supply shock has the capability of driving inflation up and unemployment up. The central bank has a really hard time deciding what the right thing is to do."

No rate cuts in 2026?

The Fed last cut rates in December 2025, when the Consumer Price Index stood at 2.7% on an annual basis — above the Fed's 2% target but down sharply from the pandemic-era high of 9.1% in June 2022. 

Since the Iran war began on Feb. 28, global energy costs have spiked, pushing the average U.S. price for a gallon of gasoline to $4.23 on Wednesday, about $1.25 more than before the conflict. Economists now forecast that April's inflation rate could jump to 3.9% annually due to higher oil and gas prices, according to FactSet. 

Higher energy costs are leading some U.S. consumers to hold off on buying big-ticket items, noted Oxford Economics in an April 28 report. 

"We expect higher oil prices will hit consumers' real disposable income growth and weigh on spending on durable goods and discretionary services the most," the investment advisory firm said.  

A dip in spending would pose risks for the economy, which relies on consumer purchases for 70 cents of every $1 in gross domestic product.

So far, the U.S. economy remains resilient, Powell said, but the Fed is closely watching whether consumers pull back on spending due to higher gas and energy prices. 

Uneven job growth

The Fed is also keeping an eye on the labor market, which has idled amid economic uncertainty, uneven payroll gains and the emergence of artificial intelligence. 

Some companies have announced large layoffs, citing AI, although economists say the technology doesn't yet appear to be causing widespread job cuts.

Signs of a weaker job market could persuade some Fed officials to dial back borrowing costs for consumers and businesses. Powell has recently described the employment market as relatively balanced, while acknowledging that young college grads face obstacles in finding work. 

"Any refinement in how the Fed describes labor market conditions, particularly wage pressures and hiring demand, could carry implications for expectations around future rate policy," noted Ameriprise chief market strategist Anthony Saglimbene in an April 27 research note.