Fed announces interest rate decision as markets wait for update on Powell’s future after the president demands he step down
Jerome Powell has shocked global stock markets by hinting that he would remain on the governing board of America’s central bank when his term as Federal Reserve chair ends in May.
“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,’ said Powell .
Up until this afternoon, uncertainty over Powell’s plans had been front of mind for investors and markets worldwide – and now the Fed finds itself in a historically unprecedented position.
Just this morning, Congress advanced the nomination of President Donald Trump’s hand-picked successor for chair, Kevin Warsh, all but guaranteeing his confirmation in the Senate within days.
While Warsh will almost certainly replace Powell when his term as chair ends May 15, what happens next could very well extend the Fed’s dramatic face off with President Trump.
That’s because Powell’s term as a member of the Fed’s governing board doesn’t end until 2028 – traditionally, outgoing chairs have resigned from the board as soon as they hand over their leadership position.
But these are not normal days, and Powell has warned that President Trump’s assault on the independence of the central bank requires him to remain, on principle.
Meanwhile, Trump has threatened to fire Powell if he doesn’t step down of his own accord.
Today’s announcement dispels the uncertainty over Powell’s plans that had been front of mind for investors and markets worldwide
As expected, the Federal Reserve left its key interest rates unchanged, although Wall Street analysts were shocked to see the level of internal disagreement over the decision.
This is the third consecutive meeting where the central bank has stayed on pause, in the wake of three quarter-point rate cuts in late 2025.
The committee that sets interest rates has 12 members, and today’s vote was split eight votes to four – the last time there were this many members voting against the majority was October 1992.
While only one member dissented from the decision to keep rates unchanged at 3.5 to 3.75 percent, three others voted against a major policy change that could have long-term implications for stock markets.
Rates were left on pause, but the policy change would have teed up the possibility of rate cuts soon, and the four voters were united against the change – preferring not to open the door to rate cuts.
In addition, the Fed warned on prices, stating that ‘inflation is elevated, in part reflecting the recent increase in global energy prices.’
Wall Street experts note that while Fed chair Jerome Powell has been able to maintain strong consensus at the central bank throughout his term, the central bank has been subjected to historically unprecedented pressure from President Donald Trump to cut rates for the last year.
Now markets are eager to hear what Powell has to say about his future at the post-meeting news conference.
The Fed usually prefers to operate quietly in the background, but during President Trump’s second term, it has been surrounded by more drama than usual.
Between the recently ended Department of Justice investigation, questions about Powell’s status, and an incoming Fed chair backed by a White House that has been unusually vocal on monetary policy,
‘The Fed usually prefers to operate quietly in the background,’ Bret Kenwell, US investment analyst at eToro, told the Daily Mail. ‘[Recently] it has found itself in a brighter spotlight than it would probably prefer.’
In January, Powell warned that he would not leave his position until the Department of Justice investigation into the Fed was closed with ‘transparency and finality,’ and warned later that he had ‘no intention’ of stepping down early.
Top federal prosecutor, Jeanine Pirro, closed her investigation last week, but questions remained about whether the probe was entirely over, temporarily suspended or fobbed off to a Federal Reserve office.
The probe centered on alleged cost overruns in a $2.5 billion renovation of the Fed’s Washington headquarters, and Pirro said it would be handed to the central bank’s internal watchdog.
‘So far, the Fed has done a solid job maintaining its independence despite heightened political pressure, and investors will be watching to see whether that continues into the next chapter,’ said Kenwell.
Investors won’t have to wait long for a better sense of how the Fed may be thinking about interest rates.
On Thursday, we’ll get the first-quarter GDP report and another update on inflation. Until inflation and energy prices cool off – or we see a more notable deterioration in the economy or labor market – rate cuts may be hard to justify.
