Washington (CNN) — The Federal Reserve on Wednesday kept interest rates unchanged for a third consecutive meeting, with some policymakers citing still-elevated energy prices due to the U.S.-Israeli war with Iran. Federal Reserve Chairman Jerome Powell presided during the two-day meeting of the Federal Reserve’s Open Market Committee. Fed officials kept the benchmark lending rate in a range of 3.5-3.75%.
Kevin Warsh, President Donald Trump’s nominee to succeed Powell, is widely expected to favor additional rate cuts this year, and he cleared a key hurdle in his confirmation process earlier Wednesday, putting him firmly on track to assume one of the most powerful positions in the global economy. His nomination is expected to advance to the broader Senate chamber for a final vote.
But, while Warsh may favor lower rates, there currently isn’t a convincing economic argument for easier monetary policy anytime soon — a view that three key Fed voters telegraphed at this meeting.
The decision to hold steady was nearly unanimous, with only Fed Governor Stephen Miran casting a dissenting vote in favor of lower rates than the majority wants for the sixth consecutive meeting.
But Fed presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas “did not support inclusion of an easing bias in the statement at this time.”
Their dissents underscore how difficult it will be for Warsh, if he’s confirmed, to persuade the majority of the Fed’s 12-person rate-setting committee to go along with lower rates. While the Fed chair wields considerable influence, controlling the agenda for every Fed meeting, they have only one vote in a committee that makes consensus-based decisions.
No good argument for rate cuts
For a number of reasons, it will be tough for any Fed official to argue for imminent rate cuts.
Energy prices remain elevated due to the Iran war; Americans are still spending, which is lifting company profits; the U.S. labor market is weak, but seems to have stabilized; and the Fed chair does not have unilateral authority over the U.S. central bank’s rate decisions.
The Fed typically lower borrowing costs if inflation is slowing, unemployment is rising (and at risk of climbing higher), or a combination of the two — neither of which is happening. And that’s allowing Fed policymakers to be prudent, waiting on the sidelines to see everything play out before making a call to raise or lower rates, as several of them have said in recent public speeches, particularly the officials who dissented this week.
The Fed’s latest policy statement acknowledged that “developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.”
Still, the Fed continue to acknowledge that the U.S. labor market remains in a delicate state. Job growth over the past year has been usually weak, meaning that any significant uptick in layoffs could leave many Americans struggling to find a job, easily resulting in higher unemployment. Companies have felt paralyzed by the seismic shifts in economic policy, including Trump’s sweeping new tariffs on all global trading partners, forgoing hiring for now. And the Iran war has become yet another source of uncertainty giving companies some pause.
Warsh’s plans
While Warsh may struggle to make a case for more than one or two rate cuts this year, his leadership would still likely usher in a new era at the Fed.
The Fed nominee in his confirmation hearing last week vowed for “regime change” at the central bank, if he’s confirmed, including potentially reducing the number of policy meetings each year and introducing a new inflation “framework.”
Since the 1980s, the Fed has met eight times a year to set interest rates, but is required by law to meet only quarterly. Warsh told lawmakers that four meetings a year “is not enough,” but did not commit to continuing with the tradition of eight meetings a year. It’s unclear if Warsh would need other Fed officials to agree with paring back the number of meetings.
Warsh also reiterated his long-held criticism that central bankers communicate too frequently, suggesting he might consider abandoning the post-meeting news conferences that became customary after every Fed meeting since former Fed Chair Ben Bernanke, though whenever he does address reporters, he said “it would be incumbent to hear what the reporters of the day had in mind.”
The-CNN-Wire
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