Fed Keeps Rates Unchanged as Oil Shock Lifts Inflation; Powell to Stay on Board Amid Legal, Political Strains

At 2:30 p.m. ET on April 29 (12:30 a.m. Beijing time on April 30), the Federal Reserve left interest rates unchanged at its latest FOMC meeting, keeping the target range for the federal funds rate at 3.50% to 3.75%. The decision came as energy prices surged amid renewed conflict in the Middle East, lifting headline inflation and intensifying debate inside the committee over whether to retain language that markets have read as a tilt toward future easing. The meeting produced the most divided FOMC vote since 1992. Chair Jerome Powell used what he called his final press conference as chair to underscore a separate point: central bank independence. He said he will remain on the Fed’s Board of Governors after his chair term ends May 15, citing legal and political actions taken by the Trump administration that, in his view, threaten the Fed’s ability to conduct policy without political interference. Powell said he does not intend to act as a "shadow chair" for his successor, but also does not plan to leave while institutional independence remains under pressure. Economic backdrop and policy stance Powell said the economy is expanding at a steady pace. Consumer spending has held up and business fixed investment remains relatively strong, while housing activity is still weak. In the labor market, he pointed to a 4.3% unemployment rate in March, little changed in recent months. Job gains have been modest, and employment growth has slowed over the past year, which he attributed in part to slower labor force growth tied to reduced immigration and lower participation. He also said labor demand has weakened, while indicators such as job openings, layoffs, hiring and nominal wage growth have shown little overall change recently. On inflation, Powell said price pressures have risen again and remain elevated versus the 2% target. He cited data indicating overall PCE prices rose 3.5% over the 12 months ending in March, driven largely by a sharp increase in global oil prices linked to the Middle East conflict. Core PCE inflation, excluding food and energy, was 3.2% over the same period, which he said reflects in large part the impact of tariffs on goods prices. Powell said short-term inflation expectations have moved higher since the start of the year, likely due to the jump in oil prices, while most longer-term expectations remain consistent with the 2% target. He said the Fed is "well positioned" to adjust policy if needed, and stressed that decisions will be made meeting by meeting rather than on a preset path. Leadership transition and Powell’s decision to remain Powell congratulated Kevin Warsh on his confirmation by the Senate Banking Committee and said Warsh would become chair once confirmed and sworn in, and then be elected FOMC chair by committee colleagues. Powell said his choice to remain as a governor is driven by concern over what he described as unprecedented legal actions that could undermine the Fed’s ability to set monetary policy free of political influence. He said the issue is not criticism by elected officials, but the institutional risk posed by legal pressure. Pressed on whether staying could itself be seen as political because it may affect the balance of the Board, Powell rejected that characterization and said he had originally planned to retire, but changed course because of developments over the past few months. He said he intends to return to a low-profile governor role and not complicate the incoming chair’s task of building consensus. Powell also referenced a criminal investigation that he said has been concluded by the U.S. Attorney for the District of Columbia, while noting the possibility of reopening if necessary. He said the Department of Justice has indicated it will not reopen the matter absent a referral from the Fed’s Inspector General. Powell said he would not leave the Board until the process is "truly, thoroughly, and transparently" finished. Inflation risks: tariffs and energy On tariffs, Powell reiterated the Fed’s working assumption that tariffs lead to a one-time increase in the price level that should fade in measured inflation over time. He said the next two quarters are a key window for that fade-out to appear, and the Fed will watch closely. On the oil shock, he said the traditional approach is often to look through energy price spikes if they are temporary and inflation expectations remain anchored, given the long and uncertain lags of monetary policy. He added that caution is warranted because inflation has been above target for years and policymakers are already trying to look through tariff effects. He said before considering rate cuts, he would want to see the energy shock move into a declining phase and see progress on tariff-related inflation. Statement language and the split vote Asked why the statement still included phrasing associated with a dovish lean, Powell said the committee debated whether to shift to more neutral language. He said support for moving to a neutral posture has increased, reflecting higher inflation and uncertainty tied to the Middle East. He noted that three members dissented on the wording while still agreeing with the rate decision. Powell said the majority did not see a need to change the guidance at this meeting and argued there was no urgency, given how quickly conditions could change over the next 30 to 60 days. With Brent crude nearing $120 per barrel, Powell declined to speculate on whether the language would be retained at the next meeting, noting that new leadership may be in place. Communication tools: press conferences and dot plots Powell defended the shift to holding press conferences after every meeting, saying it helps deliver a unified message for a committee with diverse views and supports flexibility to act at any meeting. On possible reforms to the dot plot and the Summary of Economic Projections, he said prior efforts did not gain enough broad support for major changes and noted the Fed’s structure makes issuing a single formal forecast difficult. Neutral rate and whether policy is restrictive Powell said the neutral rate cannot be known precisely but estimated it in a 3% to 4% range, placing the current policy rate near the upper end of that band. He said he does not see a strong case that policy is distinctly restrictive, describing it as neutral or slightly restrictive. He said no one is calling for an immediate rate hike, but the Fed is positioned to move in either direction depending on how data evolve. Growth versus inflation risks from the conflict Powell said the U.S., as a major energy exporter with far less oil dependence than in the 1970s, is likely to face a smaller macro hit than Western Europe or many Asian economies. He acknowledged higher gasoline prices are already squeezing households and could eventually weigh on consumption, but said the Fed has not yet seen evidence of a spending slowdown caused by the shock. Fed independence: legal foundations and norms Powell said the Fed’s independence is rooted largely in law and reinforced by institutional conventions that define boundaries between the Fed, the executive branch, and the Treasury. He warned that using Fed tools for objectives outside its mandate would draw the institution into politics. Asked whether independence is as strong as when he became chair, Powell said it faces risks and remains the subject of ongoing legal disputes. He said the core issue is whether monetary policy can be set based on analysis and judgment rather than political advantage. He argued that advanced economies have broadly adopted strong central bank protections because elected politicians tend to favor low rates, risking inflation. He said credibility depends on the market’s belief that the Fed will deliver 2% inflation, and he pointed to long-term inflation expectations as evidence that credibility remains intact. Internal governance and reserve bank functions Powell said concern exists that similar legal attacks could continue, though he declined to characterize colleagues’ views. On proposals to centralize certain Federal Reserve Bank functions for efficiency, he said there is room to consolidate duplicated tasks while preserving twelve strong regional reserve banks and the local information they provide. He also rejected the idea of removing officials due to differences over monetary policy views, warning such a move would erode independence and turn the Fed into another cabinet agency. Looking back: inflation and resilience Powell declined to characterize his legacy but reiterated the Fed’s commitment to returning inflation to 2% sustainably, arguing that moving too quickly could impose higher costs such as job losses. He described the U.S. economy as resilient, citing steady growth, strong consumer spending, and substantial investment in data centers. He said the labor market looks balanced but uncomfortable, with low turnover and limited hiring making it difficult for job seekers, even as the unemployment rate remains low. Powell closed by emphasizing that policy disagreements are inevitable in a series of supply shocks—including the pandemic, the Russia-Ukraine war, tariffs, and the current Iran-linked oil surge—but said the Fed must stay out of the political cycle while pursuing maximum employment and price stability.