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

Original | Odaily Planet Daily (@OdailyChina)

Author | Golem (@web3_golem)

At 2:00 a.m. Beijing Time on April 30, the U.S. Federal Open Market Committee announced its latest interest-rate decision, deciding to keep the target range for the federal funds rate unchanged at 3.5%-3.75%. The Federal Reserve kept rates unchanged as expected, but what unsettled the market was that 12 voting members participated in the vote, and in the end the rate decision was approved by a rare split vote of 8 to 4— the largest number of dissenting votes for a Fed rate decision and policy statement since October 1992.

Meanwhile, at the press conference after the announcement, the current Fed Chair Powell said that this was his last press conference as Chair, but after his term ends (May 15) he would still continue to serve as a Federal Reserve Board member, with the duration to be determined. (Odaily note: Powell’s Fed Board term runs until January 2028.)

The information implications hidden in this FOMC meeting are far from trivial. On the one hand, the rare four dissenting votes show that the Fed’s hawkishness has deepened. On the other hand, by breaking with the tradition of a Fed Chair stepping down from the Board simultaneously after his term ends, Powell also gave Trump a warning—spoiling Trump’s plan to use political pressure to push the Fed to cut rates.

Fed Hawkishness Deepens

Based on the contents of the FOMC statement, among the four dissenting votes in this Fed rate decision, Fed Board member Milan voted against maintaining the rate unchanged as in the past, supporting a 25 basis point cut. But the remaining three dissenting votes—Cleveland Fed President Hammack, Minneapolis Fed President Kashkari, and Dallas Fed President Logan—objected to the inclusion of language in the monetary policy statement that suggested a “dovish tilt.” In short, it signaled a more explicit opposition to future rate cuts.

Such a rare internal disagreement stems from the U.S.-Iran conflict leading to a contraction in global oil supply, and the continued surge in crude oil prices that could further worsen the already high inflation in the United States. At the press conference, Powell also acknowledged that there had been intense debate within the committee: “the number of officials supporting a shift toward a neutral bias has increased,” and “perhaps next time the committee will consider changing the current dovish tilt.” At the same time, he emphasized that the market’s reaction to the officials’ dissenting votes was excessive, and that opposing maintaining dovish language in the statement does not mean officials are inclined to raise rates. “It’s not that people are saying we need to raise rates right now. It’s more about whether the Fed should remain neutral on the policy outlook.”

However, the market generally still believes that the public disclosure of this internal dissent this time indicates the Fed’s hawkishness has already deepened. In the past, the Fed tended to treat price increases caused by geopolitical events as “temporary shocks.” For example, in 2025, the impact of Trump’s tariff policies on commodity trade led to price increases; at that time the Fed assessed it as a “one-time price increase impact,” and it did not prevent the eventual decision to cut rates.

This time, the Fed’s stance toward the surge in oil prices driven by the U.S.-Iran conflict is changing. The U.S.-Iran conflict has been ongoing for about 2 months, but as of now there has been no substantive progress in peace talks, the Strait of Hormuz remains under control, and crude oil prices remain elevated. In this situation, more and more officials within the Fed believe that high oil prices have shifted from short-term impact to long-term, persistent pressure, which is why their policy stance has become more cautious.

In this Fed statement, the Fed’s wording on inflation also changed from “slightly elevated” to “moderately high,” further indicating that Fed officials are increasingly concerned about the potential transmission effects of oil prices and the overall price level. Although these remarks and positions are not yet enough to suggest the Fed will decide to raise rates at its next policy meeting, they at least show the market that the difficulty of cutting rates is increasing. According to monitoring by Odaily Seer, on Polymarket the probability of “the Fed will not cut rates in 2026” rose from 38% to 57%, an increase of 19%.

However, there are also views that the four dissenting votes appearing in this FOMC may have been intentional—meant to send a warning to the incoming new Fed Chair Waller that independence must be maintained, and that Trump’s directives to cut rates can’t be followed blindly, otherwise they would cast dissenting votes.

Trump’s Political Pressure to Cut Rates Falls Flat

Hours before this highly divided Fed meeting took place, the Senate Banking Committee had already advanced Waller’s nomination process for Fed Chair. On Sunday, after the Department of Justice announced the end of its investigation into Powell, Thom Tillis also switched to support Waller. Ultimately, the Senate Banking Committee approved Waller’s nomination by a party-line vote of 13 to 11, and submitted it to the full Senate.

After Republican Senator Thom Tillis, this key obstacle, was cleared, Waller is highly likely to receive Senate confirmation before Powell’s term ends. The Senate’s official calendar for 2026 shows that May 4 to May 8 are Senate recess days, so the earliest window for the full Senate vote can only be the week of May 11 after the Senate returns. Under a Senate controlled by Republicans, as long as Waller can be scheduled, his nomination could be confirmed between May 11 and May 15.

Although even after nomination confirmation, before Waller officially takes charge of the Fed he will still need to go through the presidential appointment process (Odaily note: Waller is not a Fed Board member; he needs to first fill Milan’s seat as a Board member) and other procedures such as taking the oath of office, he will still have time to preside over the June FOMC meeting rather than Powell serving as acting chair. (Odaily note: In 2018, Powell took the oath 13 days after being confirmed, and his second term as Chair went from Senate confirmation to his formal oath-taking in 11 days.)

Therefore, Trump is again pleased to say that now is a good time to lower interest rates, because the new Fed Chair he appointed—Waller—is going to take over before the next FOMC meeting. Waller previously made multiple dovish remarks. But what Trump did not expect is that even if Powell is no longer Chair, Powell—burdened with a strong sense of responsibility—still has to “find ways” to ruin Trump’s plan.

At the FOMC press conference, Powell said he would not become a “shadow chair” and would give Waller ample room to carry out policies. Powell’s reason for continuing to serve as a Fed Board member is to defend the Fed’s independence. He said, “What happened over the past three months (Trump’s legal lawsuit against Powell) left me with no choice but to stay on.”

Powell previously believed that Trump’s investigation into the costs of renovating the Fed building was intended to use political pressure to force him to cut rates, but in the end Powell did not let Trump succeed. Now Waller is Trump’s chosen new Chair, and the two also have a personal relationship. Powell therefore believes that after Waller takes office he might disregard objective facts and instead follow Trump’s instructions to cut rates; that is why Powell remaining on the Board is to prevent Trump from fully controlling the Fed.

Powell’s decision to remain does, in fact, limit Trump’s ability to place allies on the Board from a staffing perspective. Combined with the incoming Waller, among the Fed’s seven Board members, three are nominated by Trump, and the other two are Bowman and Waller. If Powell were to step down as Chair while also resigning from the Board according to tradition, Trump would then gain another opportunity to appoint a Board member—leading to Trump holding four of the seven Board seats appointed directly by him.

And given that the Fed overall has already shown a hawkish posture (coincidentally, the three FOMC members opposing the dovish stance are all regional Fed presidents, not Fed Board members), even if the more dovish Waller takes over, the policy committee facing him would still be extremely resistant to rate cuts.

Therefore, Trump’s continuing political pressure on Powell and the Fed, at least so far, has not only failed to achieve results, but has instead strengthened the Fed’s resistance. For Trump, in the current situation, the best course of action may be to quickly end the U.S.-Iran conflict or open the Strait of Hormuz, lower oil prices, and thereby provide a convincing rationale for Waller to persuade other Fed officials to support rate cuts.