By Nicole Goodkind
The Federal Reserve held its benchmark rate steady this week in an 8-to-4 vote that was the most divided by the Federal Open Market Committee since 1992.
Three of the four dissenters -- Beth Hammack of the Cleveland Fed, Neel Kashkari of Minneapolis and Lorie Logan of Dallas -- agreed with the majority on keeping the rate at 3.5% to 3.75%.
What they objected to was a single sentence in the postmeeting statement: the committee's pledge to weigh "the extent and timing of additional adjustments" to the federal-funds rate. The fourth dissenter, Gov. Stephen Miran, voted to lower interest rates for his sixth consecutive meeting.
In written statements released Friday, the three regional presidents argued that the phrase had become a de facto promise of further interest rate cuts, one they said was no longer appropriate given rising energy prices and inflation that remains well above the Fed's 2% target.
The language in question first appeared when the Fed began its current easing cycle in September 2024, and markets have consistently read it as a signal that rates will continue to fall, argued Kashkari. That association, all three presidents said, is distorting financial conditions in ways that undercut the Fed's mandate of stable prices.
Fed Chair Jerome Powell seemed to indicate that the he would defer to nominee Fed chair Kevin Warsh -- likely to take over before the June meeting -- about what to do over the language. He also suggested that it was best to make changes slowly in a mixed economy.
"There's a lot of signaling going on when you change guidance like that, " Powell said Wednesday.
"Ironically, Powell seemed to make one of Warsh's longstanding arguments against forward guidance for him -- that in this case, the guidance had perhaps become more of a burden than a benefit because the costs of changing or removing it were seen as high," said economists at BNP Paribas in a note this week.
The economy is too strong to justify an easing tilt, said Hammack in her written dissent on Friday. Unemployment is near full employment, and inflation pressures are broad-based and now compounded by energy prices, she said. With upside risks to prices and downside risks to growth, she wrote, a rate increase is just as plausible as a cut.
Inflation has remained well above 2% for more than five years, added Logan on Friday. Trimmed-mean measures, which filter out volatile categories like energy and food, were already running well above target before oil prices began climbing and now war in the Middle East threatens to keep supply chains constrained. The statement, she wrote, should not imply the Fed's next move in any direction.
Kashkari drew a direct comparison to today's conflict and the early phase of the Russia-Ukraine war. The oil price increase since February, he wrote, already matches or exceeds the 2022 shock in percentage terms. A prolonged closure of the Strait of Hormuz, he added, could produce damage to energy infrastructure that outlasts the conflict itself.
He outlined two scenarios. If the Strait reopens quickly, the appropriate response is to hold rates and then ease gradually as the shock fades. If the disruption persists, he wrote, rate increases, and "potentially a series of them," may be necessary to keep inflation expectations anchored, even if the labor market softens.
Wednesday's policy meeting was Powell's last as chair. On the same day, the Senate Banking Committee advanced the nomination of Kevin Warsh to succeed him.
Warsh has said repeatedly that he favors lower rates. Three of the Fed's regional presidents have now formally stated their view that the next rate move could go in either direction. Whether he'll be able to convince them otherwise remains to be seen.
Write to Nicole Goodkind at nicole.goodkind@barrons.com
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May 01, 2026 15:49 ET (19:49 GMT)
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