FOMC Maintains Interest Rates at Powell’s Last Meeting as Chair

This week’s FOMC meeting was unique for two reasons. First, it was Jerome Powell’s last meeting as Federal Reserve Chairman. Second, it was the first meeting since higher oil prices have pushed inflation to levels not seen for several years.

While these factors were unique, the target range for the Fed Funds Rate was not. Committee members voted to hold it steady for the third consecutive meeting amid escalating uncertainty.

FOMC Holds Fed Funds Rate Steady

The committee voted to leave the target range for the Fed Funds Rate at 3.50 – 3.75%, the same range that has been in effect since December 2025. This stance is what Chair Powell has referred to as “neutral,” meaning it is intended to neither accommodate nor restrict economic activity.

This decision appears unusually contentious based on the four dissenting votes – the most on any decision since 1992. However, three of the dissenting members did not oppose the rate decision but opposed an “easing bias” in the language of the statement.

Chair Powell explained that these three committee members preferred to use more neutral language in the statement that would imply an equal, or nearly equal, probability of a rate hike and a rate cut. Based on Chair Powell’s answers to journalist questions, the contention stemmed from uncertainties surrounding the conflict in the Middle East and its impact on the broader economic situation.

Data Behind the Decision: Inflation, Unemployment, Economic Growth

Since the previous FOMC meeting on March 17^th and 18^th, the FOMC received a few pieces of data that painted a clearer picture of the economy. The committee has historically shown particular interest in inflation, unemployment, and Gross Domestic Product [GDP], though only one of these factors changed dramatically between meetings.

Energy-Driven Inflation Spike

The rate of increase for the Consumer Price Index [CPI] from March 2025 to March 2026 was 3.3%, a staggering jump from the previous month’s rate of 2.4%. The Bureau of Labor Statistics and Chair Powell noted that the increase was mostly due to a rapid escalation in energy prices. These prices have risen quickly since the start of the conflict in the Middle East.

“Core” inflation, which excludes food and energy, rose by an annual rate of 2.6% for the year ending in March following a 2.5% increase for the year ending in February. This rate remains above the Fed’s 2% target, and Chair Powell stated that much of the difference between the goal and reality is due to tariff policy.

Chair Powell stated in the press conference that the FOMC is working under the hypothesis that tariffs will create a one-time increase in the base level of prices, and the inflation rate should decline as that increase is realized. He further stated that he expects that one-time price increase to be reflected within the next one to two quarters, allowing inflation to fall after that time.

His opinion on energy-related inflation also remained stable from his past remarks in March. The “textbook” way for the Fed to handle an energy shock is to “look through” it because monetary policy is a long-term tool and energy price shocks are typically short-lived. However, the Fed could pivot if long run inflation expectations begin to rise due to a prolonged period of high energy prices.

Unemployment and Economic Growth Showed Little Change from March

While inflation changed dramatically since the last meeting in March, the labor market was relatively stable. The unemployment rate was 4.3%, which is well within the range of the past few months. Chair Powell’s commentary on the labor market was familiar – job gains remain low, the labor force is shrinking due to lower immigration and labor force participation, and the unemployment rate remains relatively low.

Similarly, there was little change in the rate of economic growth since the March meeting. Chair Powell noted the same factors as the previous meeting – consumer spending remains resilient, business fixed investment is expanding at a brisk pace, and the housing market remains weakened.

Overall, inflation and the uncertainty of the conflict in the Middle East took center stage in the press conference accompanying the interest rate decision. The facts were clear – inflation is up, unemployment is stable, and economic activity continues to expand. However, international conflict could influence all three factors, so the uncertainty of what will happen – and when it will occur – are the major questions left to be answered.

The Future of Interest Rates

With the current policy rate being what the Fed considers “neutral,” the committee can wait for incoming data before deciding on a change to interest rates. The three dissenting members of the committee appear to believe the next change to rates could be positive or negative, while the remaining committee members appear to currently favor the possibility of a rate cut as the next policy move.

The timing and direction of the next change to interest rates will likely depend on the conflict in the Middle East, subsequent energy prices, and the interpretations of the American people. However, the committee has repeatedly stated that they are not on a preset course and will continue to make decisions meeting by meeting.

Chair Powell Will Remain a Governor for Now

This meeting was Powell’s last as chair of the committee, as Kevin Warsh is set to take over the role before the next FOMC meeting in June. Chair Powell expressed his gratitude for the opportunity to work with his colleagues and serve in the role since 2018.

He had previously stated that he would remain part of the Federal Reserve until the legal case against him was concluded. That case was suspended about a week before the meeting, though there are still some questions about whether it could resume. Powell described himself as “encouraged” by the progress toward resolution thus far and stated that he will remain a Fed governor for a “period of time.”

While Powell’s era as Chairman is over, the Fed still has much work to do in keeping the American economy running smoothly. Tricky inflation and heightened uncertainty are obstacles that are expected to make their task more difficult in the short term, and keeping a keen eye on incoming economic data is a wise move for anyone looking to anticipate the Fed’s actions.

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