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Jerome H. Powell capped off his eight-year tenure as chair of the Federal Reserve with the most divisive policy meeting in decades, as three officials suggested the central bank should more directly signal that the Fed’s next move could just as likely be a rate increase as a cut.
Adding to the drama was an announcement by Mr. Powell that he would remain as governor at the central bank after his term as chair ends May 15 and President Trump’s handpicked successor, Kevin M. Warsh, takes over. That decision will deny Mr. Trump the opportunity to appoint another governor to the Fed’s seven-member board until Mr. Powell leaves.
Mr. Powell’s decision to stay, which he can do until January 2028, breaks with tradition. But he pegged it to the numerous broadsides that Mr. Trump and his administration had launched against the Fed in the last year, which he warned put the central bank’s independence “at risk.”
Wednesday’s meeting, at which the Fed voted to keep rates unchanged at a range of 3.5 to 3.75 percent, encapsulated the acute challenges that Mr. Warsh will inherit once he steps into the role. In his confirmation hearing, Mr. Warsh said he wanted “messier” meetings and for the Fed to have a good “family fight,” which he seems likely to get.
But he is also at risk of becoming Mr. Trump’s newest target if he is unable to deliver the rate cuts that the president has long demanded. He has spent years attacking Mr. Powell for not cutting rates quickly or aggressively enough, calling him a series of names, including “too late,” “a stupid person,” and a “moron.”
Mr. Trump on Wednesday reiterated that it was a “good time” to lower rates, just as officials at the Fed were making clear that they had turned more wary about providing that relief. Inside the central bank, the debate has shifted away from when to cut again toward whether to do so at all, resulting in the most divisive meeting since 1992. The calculus has changed largely because of the war in Iran, which has sent energy prices soaring and lifted inflation.
Stephen I. Miran, who was appointed to the Fed last year by Mr. Trump, issued his sixth straight dissent and voted for a quarter-point cut. Presidents from three of the regional reserve banks supported the decision to hold rates steady. But they wanted the Fed to signal more explicitly in its policy statement that the next move from the central bank was not necessarily another rate cut.
Instead, the Fed maintained in its statement that “in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks.”
The dissents came from Beth Hammack, president of the Cleveland Fed; Lorie Logan, who runs the Dallas Fed; and Neel Kashkari, who heads up the Minneapolis Fed.
The concern for a growing number of officials is that the longer the war with Iran drags on, the bigger the economic hit will be. Officials fear a situation in which higher energy prices push up prices elsewhere, especially across the services sector, leading to a more persistent inflation problem that would be more difficult to address.
Expectations about future inflation indicate that Americans have not lost faith in the Fed’s ability to eventually bring inflation back down to its 2 percent target. But the emergence of another shock that has pushed inflation further from the Fed’s goal — the fourth in five years — will no doubt test that confidence.
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Jerome H. Powell on Wednesday said that he would remain at the central bank after his term as chair ends on May 15 and his successor, Kevin M. Warsh, takes over. Credit…Anna Rose Layden for The New York Times
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