How to view Powell's farewell speech?

Early this morning, Federal Reserve Chair Powell completed his last press conference during his term.

The Federal Open Market Committee voted an unusual split of 8 to 4, deciding to keep the federal funds rate unchanged at 3.50%—3.75%. After three consecutive rate cuts since the end of last year, this is the third pause in a row since 2026.

The four dissenting votes are the most since 1992, with some media commentators suggesting it reveals serious disagreements within the decision-making body over whether to continue hinting at future rate cuts.

The split in votes is superficial; the real issue is the subtle shift towards a hawkish stance. Among the four dissenters, only Governor Mester advocated for a 25 basis point rate cut, while the other three opposed not the rate hold itself but the omission of language like “further adjustments” in the statement, implying that future rate cuts could be more likely than hikes.

In other words, most dissenters do not believe current policy is too tight but are concerned that premature easing might send the wrong signals to the markets.

Powell admitted after the meeting that there was intense debate within the committee, “the number of officials supporting a shift toward a neutral bias has increased, and perhaps at the next meeting, we will consider changing the current accommodative stance.” This marks a transition in the Fed’s policy focus from a one-way easing assumption to managing risks in both directions.

The firm stance at the farewell moment relates to inflation beliefs and institutional dignity. Powell explicitly stated that the current policy stance is “very appropriate to wait,” citing the Middle East geopolitical conflict pushing energy prices higher, with March’s PCE inflation expected to reach 3.5%, well above the 2% policy target.

He reaffirmed the commitment to bring down inflation with “an unwavering, steadfast resolve,” clearly stating that rate cuts will only happen “after seeing energy and tariff shocks recede.”

This hawkish tone is not only a response to economic realities but also a policy legacy Powell intends to leave, prioritizing inflation control and institutional independence.

More significant than monetary policy is Powell’s announcement that he will not retire after stepping down as Chair but will remain on the Federal Reserve Board of Governors until early 2028.

He said plainly, “I had planned to retire, but the events of the past three months left me with no choice,” and called Trump’s legal actions against the Fed an “unprecedented attack,” warning that political interference could lead to disastrous consequences.

By staying on, he effectively prevents Trump from gaining a dominant majority among the seven board members. He also promised not to act as a shadow chairman, leaving ample space for his successor, Waller.

The key variable in the subsequent rate path is not Powell himself but the newly confirmed Chair Waller, who was just approved by the Senate Banking Committee.

Waller has stated he will not accept a preset rate path, advocating for shrinking the balance sheet and rate cuts in parallel, opposing hasty rate reductions under White House pressure.

The current dot plot indicates only one rate cut remaining this year, with the first cut likely delayed until September or even October.

With core PCE still near 2.7% and energy shocks persisting, maintaining high interest rates for longer has shifted from a warning to a reality. The door to rate cuts is not fully closed, but opening it may come at a much higher cost than markets previously expected.