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Fed Likely to Leave Rates Unchanged 04/29 06:14
Wednesday will likely be a momentous day for the future of the Federal
Reserve as Chair Jerome Powell could signal he will stay with the Fed even as a
Senate panel is expected to confirm his replacement.
WASHINGTON (AP) -- Wednesday will likely be a momentous day for the future
of the Federal Reserve as Chair Jerome Powell could signal he will stay with
the Fed even as a Senate panel is expected to confirm his replacement.
Powell will preside over what will probably be his last meeting as chair and
hold a news conference Wednesday afternoon, when he may say whether he will
take the unusual step of remaining on the central bank's board of governors,
even after his term as chair ends May 15.
Separately, the Senate Banking Committee is scheduled to vote on the
nomination of Kevin Warsh to succeed Powell. The nomination is expected to be
approved on a party-line vote, and will then be taken up by the full Senate
next month. President Donald Trump nominated Warsh, a former top Fed official,
in January. Last year, Warsh echoed Trump's calls for the Fed to lower its key
interest rate, leading many Democrats in Congress to question how independently
he will operate as Fed chair.
The Fed is widely expected to keep its key rate unchanged Wednesday for a
third straight meeting at 3.6%. Most policymakers believe at that level, the
rate can still cool inflation by slowing borrowing and spending, but not so
much that it will drag down hiring or raise unemployment.
Still, a key issue for the news conference Wednesday is what Powell says, if
anything, about his future. Powell serves a separate term as a governor that
lasts until January 2028. Chairs typically leave the board when their
leadership terms end, but Powell has signaled he could remain. He would be the
first chair to do so since 1948.
If Powell, who has made protecting Fed independence a key part of his
legacy, chooses to stay, he would deprive Trump of the opportunity to pick his
replacement and fill another seat on the Fed's seven-member board. Three of the
seven current governors are Trump appointees.
At the same time, it could worsen tensions with the Trump administration and
would create what some analysts refer to as a "two Popes" scenario, with a
chair and former chair both on the Fed's board. In that case, divisions among
policymakers could increase, if some decided to follow Powell's lead rather
than Warsh's.
Warsh argued for rate cuts last year, but is unlikely to be able to reduce
borrowing costs anytime soon, given that most policymakers have signaled they
would prefer to wait and evaluate the Iran war's impact on the economy.
The leadership turmoil comes while the economy remains unusually murky,
putting the Fed in a difficult spot. Inflation has jumped to 3.3%, a two-year
high, as the war has sharply raised gas prices. That makes it harder for the
central bank to reduce rates. The Fed typically leaves rates unchanged, or even
raises them, if inflation is worsening.
At the same time, hiring has ground almost to a halt, leaving those without
jobs frustrated by the difficulty of finding new ones. Typically, the Fed cuts
rates when the job market is weak, to spur more spending and job gains.
But layoffs also remain low, as employers appear to be following a "
low-hire, low-fire " strategy. Many Fed officials have suggested that as long
as the unemployment rate is low, the central bank doesn't need to cut rates to
spur more spending and hiring. Unemployment declined to 4.3% in March, from
4.4%.
A key change economists will look for Wednesday is whether the Fed alters
the statement it issues after each meeting to signal that it is possible that
their next move could be either a rate cut or a hike. Right now, the statement
indicates that any change to its rate would be a cut. According to minutes of
its last meeting in March, many of the 19 participants on the Fed's
rate-setting committee support considering a hike, though it's likely short of
a majority.
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