Fed Keeps Interest Rates on Hold in Split Decision at Final Meeting of Powell Era

Federal Reserve policymakers have decided to keep interest rates on pause as they hold what is likely to be the final meeting under the supervision of Fed Chair Jerome Powell.

Powell joined the 8-4 majority on the Federal Open Market Committee to vote in favor of leaving the federal funds rate unchanged at Wednesday's meeting in Washington, DC, judging inflation as running too hot to justify a rate cut.

Fed Gov. Stephen Miran dissented in favor of a quarter-point rate cut, continuing his streak of dissents favoring lower interest rates since his appointment last year. Three other voting members supported holding rates steady, but did not support inclusion of an easing bias in the statement at this time.

The decision leaves the Fed's benchmark overnight rate unchanged in a range of 3.5% to 3.75%, where it has stood since December. After cutting rates three times last fall, the Fed paused at January's meeting, and the outlook for future rate cuts is growing increasingly uncertain.

The Fed's reluctance to cut rates has provoked the ire of President Donald Trump, who has demanded swift rate cuts since starting his second term. Trump has nominated former Fed governor Kevin Warsh to take over as chair when Powell's term expires on May 15.

However, Powell has the option to remain on the board of governors as a regular member until 2028, and has not yet revealed whether he plans to do so. While it is unusual for an outgoing chairman to remain, Trump's open feud with Powell has bucked all tradition for the central bank, and Powell may decide to stay on as both a symbolic rebuke and practical measure to safeguard Fed independence.

Although Trump has pushed the Fed for dramatically lower interest rates, the outlook for further rate cuts this year has dimmed significantly following the U.S.-Israeli war with Iran, which sent oil prices soaring and renewed fears of inflation.

Financial markets now project an 89% probability that the Fed's benchmark interest rate will be the same in December as it is today, according to CME FedWatch. It suggests investors believe inflation will remain hot enough to discourage any Fed rate cuts this year, even if Warsh were to take over as chair.

With the Fed on pause for the foreseeable future, the easing of geopolitical tensions may be more crucial for mortgage rates than any monetary policy decisions, says Realtor.com® Chief Economist Danielle Hale.

"As the ceasefire in the Middle East holds, interest rates and mortgage rates have begun to move lower," says Hale. "Despite the key decisions and upcoming leadership transition for the Fed, geopolitics is likely to be the bigger driver of mortgage rates in the near-term. For buyers and sellers hoping for favorable financing while making a move, a reduction in tension is likely to result in lower rates."

The Fed does not directly control mortgage rates. Rather, it sets the short-term interest rate for lending between commercial banks.

The central bank uses higher interest rates to fight inflation and lower rates to stimulate the job market, in line with the Fed's dual mandate of price stability and maximum employment.

Developing story, more to follow.