Powell's swan song

Everyone on Wall Street was watching the Federal Reserve today, but not for the rate decision. The real event was what will likely be Jerome Powell’s farewell speech as Fed chair.

Unsurprisingly, the FOMC decided to keep rates parked at 3.50% to 3.75% as it waits to see how the economy, inflation, job growth, and the war with Iran shake out.

“The US economy has been expanding at a solid pace while job gains have remained low,” Powell explained at the press conference. “The unemployment rate has been little changed in recent months. Inflation has moved up and is elevated in part reflecting the recent increase in global energy prices today.”

Although the FOMC’s call to hold rates steady was no shocker, it was the central bank’s most divided decision since 1992. Stephen Miran voted to cut rates, while three Fed presidents also disagreed with the wording of the FOMC’s statement, particularly the phrases “additional adjustments” and “easing bias,” which signal that more cuts could be coming. But as usual, Powell remained unflappable.

“These are really tough, difficult judgments. So it’s only natural that people have different risk stances,” he said at the press conference. “If everybody agreed, that would be surprising.”

Powell decided to stick around

Powell served on the Board of Governors since 2012 before moving up the ranks to chair in 2018, appointed by President Trump during his first term. Biden reappointed Powell for his second term, which ends in a few weeks. Once he steps down, he’ll be replaced by Kevin Warsh, whose nomination cleared the Senate banking committee today and has moved to a full-floor vote, where Warsh is widely expected to get a green light.

The biggest question on everyone’s mind heading into today’s press conference: Will 73-year-old Powell stick around as governor until January 2028, or will he call it a day and shut his spreadsheets for good?

“After my term as chair ends on May 15, I will continue to serve as a governor for a period of time to be determined,” Powell declared. “I plan to keep a low profile as governor. There is only ever one chair of the Federal Reserve Board. When Kevin Warsh is confirmed and sworn in, he will be that chair.”

For reference, all but one Fed chair has retired just after vacating the Fed hot seat.

The future of the Fed

While Powell voiced his support for his successor, many are worried whether Warsh will stand firm once Trump starts leaning on him to slash rates.

Fed independence hangs in this balance, and having Powell stay on could give the central bank more backbone as pressure ramps up. Although the Justice Department has dropped its criminal investigation into Powell, Powell said in March that he has no intention of leaving the Fed until the criminal probe is “well and truly over, with transparency and finality,” and he reiterated that plan today.

JPow’s time as Chair is ending, but it’s nice to know that the bespectacled banker isn’t riding off into the sunset just yet.—JD