US Fed holds interest rates steady amid sharp divide over policy easing bias

Added: 2026-04-30

[00:00:01]Well, the US Federal Reserve has kept the interest rates steady as widely expected. The current Fed chair, Jerome Powell, presided over what is likely to be his last immediate briefing at the helm of the central bank. He announced that he's going to stay on as Fed governor when his chairmanship ends on May 15th, which will likely not go down well with President Trump. Meanwhile, Mr. Powell's replacement, that's Kevin Warsh, has cleared a major hurdle to get getting the job amid concerns about independence on monetary policy. And Tony Waterman is tracking the developments from Washington, D.C. She filed this report for CNA.

[00:00:39]It had the looks of a normal Federal Reserve press briefing until chair Jerome Powell, normally a very reserved guy, came out swinging over attacks on the Fed's independence in what is likely to be his last press briefing at the helm of the US Central Bank.

[00:00:56]>> I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors. Taking a look. Powell didn't go so far as to name names, but President Trump has repeatedly belittled and threatened to fire him for not lowering interest rates fast enough.

[00:01:18]Powell made it clear he doesn't object to verbal criticism, but is concerned about DOJ investigations, including one against him for allegedly misleading lawmakers about cost overruns on renovations at the Fed headquarters.

[00:01:34]That case has now been dropped after lawmakers, including Republicans, refused to confirm Trump's nominee Kevin Warsh over what they viewed as a bogus Powell probe. Well, I want to find out, you know, it's not dropped. They're looking into the whole thing about the cost of the Uncertainty over whether the Trump administration will resume the investigation led to this bombshell announcement. After my term as chair ends on May 15, I will continue to serve as a governor for a period of time to be determined. It will be the first time since 1948 that a Fed chair will remain after their chairmanship ends, setting the stage for a major showdown with President Trump, who has threatened to fire Powell if he doesn't leave. The outgoing Fed chair says he'll keep a low profile as governor, allowing [snorts] his replacement, Kevin Warsh, to do his job.

[00:02:30]Mr. Chairman, the vote is 13 in favor and 11 opposed.

[00:02:34]Warsh cleared a major hurdle on Wednesday, the Senate Banking Committee advancing his nomination despite Democrats arguing that Warsh has shifted his position on inflation to better align with Trump and that he will be the president's puppet. A vote today by this committee to advance Mr. Warsh will bring the president one step closer to completing his illegal attempt to seize control of the Fed and to artificially juice the economy. Warsh insists he'll maintain the Central Bank's independence and that the president hasn't asked him to commit to lowering rates.

[00:03:13]If confirmed by the full Senate, Warsh will take the helm of the US Central Bank at a tenuous time in the middle of a war that is disrupting global energy supplies and driving up prices, the exact opposite environment needed to lower interest rates like his new boss wants. For CNA, I'm Tony Waterman in Washington.

[00:03:34]Well, indeed clear divisions at the Fed and for more on what the lack of certainty means for markets, we're joined by Terry Weisman. He is global FX and rates strategist at Macquarie Group.

[00:03:44]Uh Terry, so starting with the Fed's eight-for-split, I mean, this level of dissent not seen in more than 30 years, how should markets interpret this kind of divide in terms of forward guidance credibility?

[00:03:59]Look, I don't think this is really an issue so much about forward guidance uncertainty as it is an issue about philosophical differences among members senior of the senior staff at the Fed.

[00:04:11]Uh when you're faced with as much uncertainty as we are facing now, it is not unusual for there to be differences of opinion.

[00:04:19]And I would sub- submit that the the the the the apparent division that we saw today among the senior staff members uh should have been expected because before this meeting in at the time when uh we were before the blackout period and we were seeing speeches from the various uh Fed officials, uh we got an indication that some of them were not happy with the with the um with the easing bias that was uh mildly implicit in the statement and that they felt that uh they the Fed should simply just come out with a with the view that uh that the Fed would stay on hold indefinitely or at least until such time as the uncertainty resolves itself. Uh so I I think what happened here is that certain uh uh dissenters decided to act upon uh that view. Uh but I I wouldn't have been surprised if this had been a majority uh because when you have this much uncertainty, uh it it it it you know, central banks typically respond to uncertainty by simply sitting still and trying not to uh prejudge what markets are going to do, what the economy is going to do, and simply stay on hold, which is exactly what the Fed did with interest rates today. Mm. And with that uh we saw the two-year Treasury yields jumping sharply after the decision. I mean, are markets starting to price in higher for longer or even a tightening scenario? I mean, traders are also adding bets that the Fed will actually only increase rates, you know, well into next year.

[00:05:50]Look, in 2022 and 2023, uh following the the uh the Russia's invasion of Ukraine, uh there was a burst of global inflation that traces back to the increases in energy prices, basic energy prices that we saw around the world. The you know, a lot of analysts, a lot of economists had accused the Fed at the time and other central banks, really other central banks, being uh more so than the Fed, of being a bit too slow uh to raise interest rates at the time and to respond to the uh to the inflation. I think the Fed, like other central banks, I would not make the Fed look like it's uh you know, try to convey the idea that it's special here, are going to be increasingly concerned about higher inflation conditional on this economic war uh that is being waged between the US and Iran continuing.

[00:06:35]If the war if the economic war ends and we get normalization in in energy prices, uh then there's no reason necessarily to expect an interest rate uh hike this year. It may still come next year, of course, if the US economy strengthens as we expect it would if we get normalization um uh in energy prices. Um so so I I you know, if you're asking if there were bias towards hiking, uh there probably is, but highly contingent on the economic war continuing. And I do take uh Chair Powell's um uh at his word when he says that by the next meeting we may be in a situation where the easing bias is completely eliminated. And of course, if the economic war is continuing after that, we may go to a hiking bias. It's very possible that if the economic war does not subside and we don't get normalization, that the Fed will accelerate uh rate hikes and bring that one rate hike we expect from 2027 into 2026. Yeah, and Terry, where do you see uh the dollar headed cuz we saw some strengthening there of the greenback. Um do you expect this to be sustained? And this also coming amid soaring energy prices now looking at oil prices coming above $120 a barrel uh for Brent.

[00:07:48]Yeah, so there are really two forces that are acting on the dollar's value right now. The first is oil prices, as you mentioned, but not because it's affecting uh central bank policy. Uh oil prices are important because as you know, there's a big difference between where the US sits and where a lot of other industrialized countries sit. The US is now a net uh energy exporter. And other countries uh or or economic zones like the Eurozone, like the UK, like Japan, uh for example, are net energy importers. And as a result of that, uh policy can much confined ways or mechanisms to manage uh the effect of higher oil prices in the United States.

[00:08:25]It cannot do it as easily in other industrialized countries. And therefore, it makes sense for the market to expect that inflation will be higher in those other countries. Now, because real incomes in those other countries will be lower by virtue of higher energy prices, you can make a case that their economies will be weaker and that should help the dollar compared to other industrialized economies' currencies. On the other hand, if the other central banks, not the Fed, but the BOE, the ECB, the BOJ respond to that higher inflation abroad with higher interest rates, higher policy interest rates, you can see where that could offset the strength of the dollar and benefit those other currencies. So, the dollar is really torn at this point between those two forces. We think that the more important force will be the force whereby the US economy does better than the other economies in this context of high oil prices and that the dollar will eventually benefit on net from that. All right, many thanks for that. Terry Weisman there, he's a global FX and rates strategist at Macquarie Group.