San Francisco Frontiers - US Fed divided at Powell's likely last meeting at helm

"Inflation is elevated, in part reflecting the recent increase in global energy prices," the central bank said.

Its decision keeps rates at a range between 3.50 percent and 3.75 percent.

But four out of 12 voting officials opposed the outcome, including Stephen Miran, who sought a quarter-point cut.

Three others -- Beth Hammack, Neel Kashkari and Lorie Logan -- backed the pause but not the Fed statement signaling an inclination towards lower interest rates.

This was the most number of dissenting votes since 1992, and the divergence among officials will be closely watched.

The Fed has been on a path of rate cuts since late last year.

But with the US-Israel war on Iran causing a surge in energy costs and snarling supply chains, analysts are monitoring if inflation could prompt policymakers to instead consider the need for a rate hike.

The decision comes at a highly uncertain period for the world's biggest economy. Powell, who has been a frequent target of President Donald Trump, will hold a press conference after the decision.

Beyond the economic outlook, all eyes will be on Powell's future plans and whether he plans to stay on as a Fed governor once his chairman term expires May 15.

Meanwhile, a leadership transition is imminent with Trump's choice of new Fed chief, Kevin Warsh, clearing a key hurdle Wednesday in his rocky confirmation process.

The Senate Banking Committee voted 13-11 to advance Warsh's nomination earlier Wednesday, bringing him closer to confirmation by the full Senate.

- 'Persistent threats' -

But Democrats on the Senate panel pushed back against Warsh's confirmation, with lawmaker Elizabeth Warren charging that this would further the president's "attempt to seize control of the Fed."

Georgia Senator Raphael Warnock warned that Warsh's nomination had been "tainted by the real and persistent threats" Trump made to Fed governors.

"The independence of the Fed is foundational to our system," he said.

Since returning to power last year, Trump has frequently slammed Powell for not cutting interest rates more quickly, a policy that would boost economic activity but could fuel inflation.

He attempted to oust Fed governor Lisa Cook over mortgage fraud allegations too, in a case that now stands before the Supreme Court.

Trump's Justice Department also opened a criminal probe into Powell and the Fed over cost renovation overruns, a move the central banker called a tactic to erode the Fed's independence.

Last month, Powell vowed to stay at the Fed until the investigation was concluded with transparency. He can remain on the Fed's board of governors until 2028, even after his chairman term expires.

Republican Senator Thom Tillis on the banking panel initially vowed to block Warsh's nomination if the investigation were not concluded.

But with the Justice Department saying Friday that it was dropping the probe, Tillis relented and backed Warsh during Wednesday's vote.

It would be rare for Powell to stay on as a Fed governor, but not without precedent.

EY-Parthenon chief economist Gregory Daco expects that Powell will remain, saying it "would help preserve institutional continuity, anchor the existing communication approach, and provide a stabilizing counterweight during the transition."

While much attention will be on Powell's plans, analysts will also eye the Fed's assessment of the US economy as it battles years of higher-than-expected inflation and recent weak jobs growth.

The Fed has a dual mandate of maintaining stable prices and low unemployment.

But higher energy prices from the Middle East war caused US inflation to spike in March. While such supply shocks are often seen as temporary, central bankers have expressed concern that effects could be more lasting.

Surging energy prices could also slow down economic activity by raising production costs, affecting employment.

F.Garcia--SFF