Powell bows out without stepping down, Trump's interest rate cut plans may fall flat

Original | Odaily Planet Daily (@OdailyChina)

Author | Golem (@web3_golem)

Beijing Time April 30, 2 a.m., the U.S. Federal Open Market Committee announced the latest interest rate decision, deciding to keep the federal funds rate target range at 3.5%-3.75%. The Federal Reserve maintained interest rates as expected, but what unsettled the market was that 12 voting members participated in the vote, and the decision was finally passed with a rare split of 8 to 4 votes. This is the most opposition votes on the Fed’s rate decision and policy statement since October 1992.

Meanwhile, at the press conference after the rate announcement, current Fed Chair Powell stated that this was his last press conference as chair, but after his term ends (May 15), he will remain on the Federal Reserve Board of Governors, duration to be determined. (Odaily note: Powell’s Fed Board term runs until January 2028)

The implications of this FOMC meeting are significant. On one hand, the rare 4 dissenting votes indicate an even more hawkish stance from the Fed. On the other hand, Powell breaking the tradition of resigning from the Board of Governors upon completing his term, also serves as a warning to Trump, thwarting his political pressure to cut rates.

Fed Hawkishness Deepens

According to the FOMC statement, among the 4 dissenting votes in this rate decision, Fed Governor Milan voted against maintaining the rate, supporting a 25 basis point cut. The other three dissenters—Cleveland Fed President Mester, Minneapolis Fed President Kashkari, and Dallas Fed President Logan—opposed including language in the monetary policy statement that indicated a “dovish tilt,” in other words, a more explicit signal of future rate cuts.

This rare internal disagreement stems from the U.S.-Iran conflict causing a contraction in global oil supply, and the continued surge in crude oil prices could exacerbate the already high inflation in the U.S.. Powell also admitted at the press conference that there was intense debate within the committee, “the number of officials supporting a shift to a neutral or slightly hawkish stance has increased, and perhaps at the next meeting, a change in the current dovish stance will be considered.” He also emphasized that the market overreacts to dissenting votes, and opposition to maintaining a dovish language in the statement does not mean officials favor rate hikes. “It’s not that we think we need to raise rates now; it’s more about discussing whether the Fed should remain neutral on policy outlook.”

However, the market generally perceives that the publicized internal dissent indicates an even more hawkish Fed. Previously, the Fed tended to view price increases caused by geopolitical events as “transitory shocks,” such as the impact of Trump’s tariffs in 2025 on trade and prices, which was judged as a “one-time price increase,” not preventing the eventual rate cuts.

This time, the Fed’s attitude toward oil price increases driven by the U.S.-Iran conflict is shifting. The conflict has been ongoing for about two months, but so far, there has been no substantive progress in peace negotiations, the Strait of Hormuz remains under control, and oil prices stay high. Under these circumstances, more officials believe that high oil prices have shifted from short-term impacts to long-term sustained pressures, prompting a more cautious policy stance.

In the Fed’s statement, the language on inflation was also changed from “slightly elevated” to “elevated,” indicating increasing concern among officials about the potential pass-through of oil prices and overall price levels. While these comments and positions do not yet suggest the Fed will hike rates at the next meeting, they do signal that the difficulty of cutting rates is rising. According to Odaily Seer’s monitoring, the probability on Polymarket that “the Fed will not cut rates in 2026” has risen from 38% to 57%, an increase of 19%.

However, some believe that the four dissenting votes in this FOMC may be deliberate, serving as a warning to the incoming new Fed Chair Waller that independence must be maintained, and not to blindly follow Trump’s political pressure to cut rates, or they will vote against.

Trump’s Political Pressure to Cut Rates Fails

Just hours before this highly divided Fed meeting, the Senate Banking Committee had advanced Waller’s nomination for Fed Chair. Last Sunday, after the Justice Department announced the end of its investigation into Powell, Thom Tillis also shifted to support Waller. Ultimately, the Senate Banking Committee approved Waller’s nomination with a party-line vote of 13 to 11, sending it to the full Senate.

With the key Republican senator Thom Tillis no longer an obstacle, Waller is highly likely to be confirmed by the Senate before Powell’s term ends. The Senate’s official schedule shows that from May 4 to May 8, the Senate is in recess, so the earliest full Senate vote can occur is the week of May 11. As the Senate is controlled by Republicans, as long as the process proceeds smoothly, Waller’s confirmation could be completed between May 11 and May 15.

Although even after confirmation, Waller will need to be officially appointed by the President (Odaily note: Waller is not a Fed Governor; he needs to fill the vacant Governor seat previously held by Milan) and sworn in, he still has time to preside over the June FOMC meeting, rather than Powell acting as interim chair. (Odaily note: In 2018, Powell was sworn in 13 days after confirmation, and his second term as Chair was sworn in 11 days after Senate confirmation.)

Therefore, Trump is once again pleased to say that now is a good time to cut rates, as his handpicked new Fed Chair Waller is about to take over before the next FOMC meeting. Waller has also made several dovish statements. But what Trump did not expect was that even if Powell is no longer Chair, his sense of responsibility will lead him to “find ways” to thwart Trump’s plans.

At the press conference, Powell said he would not be a “shadow chairman” and would give Waller full policy space. Powell’s reason for remaining on the Board of Governors is to defend the Fed’s independence, he said, “the events of the past three months (Trump’s legal actions against Powell) left me no choice but to stay.”

Powell previously believed that Trump’s investigation into the costs of the Fed building renovation was an attempt to politically pressure him into cutting rates, but Powell did not let Trump succeed. Now, Waller is Trump’s chosen new Chair, and they have a personal relationship, so Powell fears that Waller might follow Trump’s instructions rather than objective facts, and cut rates accordingly. His remaining on the Board is to prevent Trump from gaining full control of the Fed.

Powell’s continued tenure indeed limits Trump’s ability to appoint loyalists to the Board from a personnel perspective. With Waller about to take office, among the seven Fed Governors, three are Trump appointees, the other two are Bostic and Waller himself. If Powell resigns from the Board upon stepping down as Chair, Trump would have another opportunity to appoint a new Governor, potentially giving him four out of seven members.

Given the Fed’s overall hawkish stance (interestingly, the three dissenters opposing the dovish stance are all regional Fed Presidents, not Governors), even if the dovish Waller takes office, the policy committee remains highly resistant to rate cuts.

Therefore, Trump’s ongoing political pressure on Powell and the Fed has so far not only failed but has strengthened the Fed’s resistance. For Trump, the best course now might be to quickly end the U.S.-Iran conflict or open the Strait of Hormuz, lower oil prices, and thus create a convincing reason for Waller to persuade other officials to support rate cuts.