GOODBYE POWELL: Final Fed FOMC Presser & Rate Decision!

This is Jerome Powell's final Federal Reserve rate decision and press conference as Chair. His term as governor ends May 15th, and he will depart the Fed board on January 31st, 2028. Powell's tenure has been marked by significant economic events, and his departure marks the end of an era. The Federal Reserve statement indicated that the FOMC decided to leave policy rates unchanged, maintaining the target range for the federal funds rate at 3.5% to 3.75%. This decision was not unanimous, with an 8-4 vote, the most dissents since October 1992. Myron R. Wallace dissented in favor of a quarter-point rate cut. Additionally, Thomas B. Barkin, Mary C. Daly, and Michelle W. Bowman dissented against the inclusion of an "easing bias" in the statement. This dissent suggests a desire among some Fed members to remove any language that implies a future inclination towards rate cuts, signaling a potentially more hawkish stance or a greater concern about inflation. The Federal Reserve's statement characterized inflation as "elevated," a step up from the previous "somewhat elevated" description, while noting that job gains have remained low on average and the unemployment rate has been little changed. Economic activity was described as expanding at a solid pace, with consumer spending resilient and business fixed investment continuing to grow. However, activity in the housing sector remained weak. The committee highlighted that developments in the Middle East are contributing to a high level of uncertainty regarding the economic outlook, and they remain attentive to risks on both sides of their dual mandate of maximum employment and price stability. Powell, in his final press conference, emphasized the Fed's commitment to achieving its dual mandate and fostering economic conditions for American families and businesses. He acknowledged the resilience of the U.S. economy, which has expanded at a solid pace despite various shocks. He noted that while job gains have been low, the unemployment rate has remained stable. Inflation, however, has moved up and is considered elevated, partly due to the recent increase in global energy prices stemming from the conflict in the Middle East. Powell reiterated that the current stance of monetary policy is deemed appropriate to promote progress toward their goals. A significant point of discussion was Powell's decision to remain on the Fed's Board of Governors after his term as Chair concludes. He stated his intention to stay until he believes the legal attacks on the Fed, which he views as unprecedented and threatening to its ability to conduct monetary policy free from political influence, have been fully resolved. Powell expressed concern that these attacks could undermine the institution's credibility and its capacity to operate without political considerations. He plans to maintain a low profile as a governor and support the incoming Chair, Kevin Warsh, in building consensus. Powell addressed the current economic situation, particularly the impact of energy shocks and tariffs. He explained that while oil shocks are typically considered transitory, the Fed would need to see the full effects and progress on resolving tariff impacts before considering rate reductions. He acknowledged that near-term inflation expectations have risen, likely due to oil prices, but longer-term expectations remain anchored to the 2% goal. Regarding the "easing bias" language in the statement, Powell explained that while there was a vigorous discussion and some members dissented, the majority felt no immediate need to change the guidance, given the ongoing uncertainties. He suggested that the center of the committee's view might be moving towards a more neutral stance. Powell also commented on Fed independence, emphasizing its legal foundation and the importance of maintaining boundaries between the Fed, the administration, and Congress. He expressed concern that Fed independence is at risk due to legal challenges and stressed the importance of the central bank making decisions based on analysis and economic goals, rather than political considerations. He believes that markets retain confidence in the Fed's commitment to achieving 2% inflation. The press conference also touched upon the broader economic outlook, including the strength of consumer spending and business investment, despite weaknesses in the housing sector. Powell acknowledged the public's perception of inflation, particularly the impact of higher energy prices, and reiterated the Fed's commitment to bringing inflation back to 2% sustainably, aiming to do so with minimal damage to the labor market. He described the labor market as balanced but unusual, with low unemployment but also low quit rates and hiring, making it harder for those without jobs to find employment. Powell also reflected on his tenure, stating that he and his colleagues have consistently strived to do what they believe is best for the American people, navigating a challenging period of supply shocks. He expressed pride in the work done during these difficult times. He highlighted the importance of Fed independence for successful advanced economies, enabling monetary policy decisions to be made based on economic analysis rather than political pressures. He believes that markets still price in the Fed's credibility in achieving its inflation targets. In summary, Jerome Powell's final press conference as Fed Chair highlighted the Fed's decision to hold interest rates steady amidst elevated inflation and geopolitical uncertainty. The significant number of dissents indicated a growing divergence of views within the committee regarding the future path of monetary policy. Powell's decision to remain on the board underscores his commitment to protecting Fed independence from political interference. The discussion emphasized the Fed's ongoing challenges in managing inflation driven by supply shocks and the complexities of balancing its dual mandate in an uncertain economic environment. Powell concluded his remarks by reiterating the Fed's dedication to its goals and expressing confidence in the institution's ability to navigate future challenges.