Fed holds interest rates steady as its independence comes under threat

Washington (CNN) — The Federal Reserve on Wednesday kept interest rates unchanged as the US central bank fights to maintain its ability to set interest rates without political interference.

Officials kept their benchmark lending rate at a range of 3.5-3.75%, following three consecutive rate cuts late last year. Several policymakers have said in recent public speeches they want to see the effects of those rate cuts before considering any further reductions, suggesting a pause could last for a few months.

The Fed’s latest rate decision comes at a pivotal moment in the central bank’s 112-year history, as the Supreme Court reviews a case with significant implications for the Fed’s independence. Chair Jerome Powell himself pushed back against the Trump administration’s threats against the Fed’s independence earlier this month in a stunning video.

The decision wasn’t unanimous, with Fed governors Stephen Miran and Christopher Waller casting dissenting votes in favor a quarter-point cut. Waller is one of the four contenders for Fed chair and, in the past, his dissents backing lower rates have been seen favorably by the Trump administration.

The Fed’s pause on rate cuts comes at a pivotal moment in the central bank’s 112-year history, as the Supreme Court reviews a case with significant implications for the Fed’s independence. Chair Jerome Powell himself pushed back against the Trump administration’s threats against the Fed’s independence earlier this month in a stunning video.

The Fed leader is set to speak publicly for the first time since his video was released, during a news conference at 2:30 p.m. ET. It’s one of the last few times Powell addresses reporters as Fed chair, with his term ending on May 15.

On Tuesday, President Donald Trump said he intends to announce his Fed chair nominee “pretty soon.” The long-awaited decision will cap off a months-long search process that at one point considered about a dozen candidates for the most influential role in global finance.

Already moving on from Powell

Trump’s Fed chair pick is perhaps the most pressing question for Wall Street, since Powell is already on his way out and markets aren’t pricing in a rate cut until the summer, once the next Fed chair is in place.

In December, the median projection among Fed officials was for just one rate cut this year. Wall Street, however, widely expects two cuts in 2026 — and a big reason for that is because the Fed’s next leader will be attuned to lowering rates.

“There isn’t a clear case to cut this year, but we know that the next Fed chair is going to come in leaning dovish, so there’s a decent chance they could get enough folks on the committee to be on board with a couple of cuts,” Aditya Bhave, senior US economist at Bank of America, told CNN. “But it will be hard for that person to build a consensus.”

Indeed, the new Fed chair will preside over a divided, 12-person rate-setting committee that doesn’t just blindly go along with whatever course of action the chair proposes. This year, there are new voices on the committee who’ve said they’re still concerned about inflation, such as Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan.

“It’s not a committee of one, it’s a committee of many, and many have to decide that there is economic justification for cutting rates,” said Tom Porcelli, Wells Fargo’s chief economist.

The path for Fed independence

Earlier this month, the Supreme Court heard oral arguments in the case of Fed Governor Lisa Cook, who is challenging Trump’s attempt to remove her from her post on the central bank’s powerful board over unproven allegations of mortgage fraud. A ruling against Cook would be widely seen as a fatal blow to the Fed’s political independence, but it’s starting to seem like that might not be the case after all.

The conservative Justices on the nation’s highest court seemed skeptical of the administration’s arguments for firing Cook and wanting to keep her out of her post while the litigation plays out.

That included Justice Brett Kavanaugh, Trump’s second nominee to the high court. He warned that future presidents could loosely define a “cause” to fire Fed officials they disagree with, if the Trump v. Cook case sets that precedent.

“What goes around comes around,” Kavanaugh told US Solicitor General D. John Sauer, pointing out how a future Democratic president could use “trivial or inconsequential or old allegations that are very difficult to disprove” to push out Trump appointees.

“Once these tools are unleashed,” Kavanaugh said, “they’re used by both sides.”

The-CNN-Wire
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