Federal Reserve keeps key rate unchanged even as four officials dissent, most in almost 34 years

WASHINGTON (AP) — The Federal Reserve left its benchmark interest rate unchanged for the third straight meeting but signaled it could still cut rates in the coming months, moves that attracted the most dissents since October 1992.

The Fed on Wednesday kept its short-term rate at 3.6% and retained language in its statement suggesting the next move would be a rate reduction. Three officials dissented in favor of removing the reference to a future cut, while a fourth, Stephen Miran, dissented in favor of an immediate rate cut on Wednesday.

The dissents underscore the level of division on the Fed’s 12-member rate-setting committee ahead of the departure of Chair Jerome Powell, whose term ends May 15. The Senate Banking Committee approved his successor, Trump appointee Kevin Warsh, earlier Wednesday on a party-line vote. Warsh has argued in favor of rate cuts, as Trump has demanded.

“Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook,” the Fed said in a statement after its two-day meeting. “Inflation is elevated, in part reflecting the recent increase in global energy prices.”

Warsh has promised “regime change” at the central bank and may make sweeping changes to its economic models, communications strategies, and balance sheet, but he will likely find it harder to implement the rate cuts Trump seeks with inflation topping 3%, above the Fed’s target of 2%.

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THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

WASHINGTON (AP) — Wednesday will likely be a momentous day for the future of the Federal Reserve as Chair Jerome Powell could signal he will stay with the Fed even as a Senate panel is expected to confirm his replacement.

Powell will preside over what will probably be his last meeting as chair and hold a news conference Wednesday afternoon, when he may say whether he will take the unusual step of remaining on the central bank’s board of governors, even after his term as chair ends May 15.

Separately, the Senate Banking Committee is scheduled to vote on the nomination of Kevin Warsh to succeed Powell. The nomination is expected to be approved on a party-line vote, and will then be taken up by the full Senate next month. President Donald Trump nominated Warsh, a former top Fed official, in January. Last year, Warsh echoed Trump’s calls for the Fed to lower its key interest rate, leading many Democrats in Congress to question how independently he will operate as Fed chair.

The Fed is widely expected to keep its key rate unchanged Wednesday for a third straight meeting at 3.6%. Most policymakers believe at that level, the rate can still cool inflation by slowing borrowing and spending, but not so much that it will drag down hiring or raise unemployment.

Still, a key issue for the news conference Wednesday is what Powell says, if anything, about his future. Powell serves a separate term as a governor that lasts until January 2028. Chairs typically leave the board when their leadership terms end, but Powell has signaled he could remain. He would be the first chair to do so since 1948.

If Powell, who has made protecting Fed independence a key part of his legacy, chooses to stay, he would deprive Trump of the opportunity to pick his replacement and fill another seat on the Fed’s seven-member board. Three of the seven current governors are Trump appointees.

At the same time, it could worsen tensions with the Trump administration and would create what some analysts refer to as a “two Popes” scenario, with a chair and former chair both on the Fed’s board. In that case, divisions among policymakers could increase, if some decided to follow Powell’s lead rather than Warsh’s.

Warsh argued for rate cuts last year, but is unlikely to be able to reduce borrowing costs anytime soon, given that most policymakers have signaled they would prefer to wait and evaluate the Iran war’s impact on the economy.

The leadership turmoil comes while the economy remains unusually murky, putting the Fed in a difficult spot. Inflation has jumped to 3.3%, a two-year high, as the war has sharply raised gas prices. That makes it harder for the central bank to reduce rates. The Fed typically leaves rates unchanged, or even raises them, if inflation is worsening.

At the same time, hiring has ground almost to a halt, leaving those without jobs frustrated by the difficulty of finding new ones. Typically, the Fed cuts rates when the job market is weak, to spur more spending and job gains.

But layoffs also remain low, as employers appear to be following a “ low-hire, low-fire ” strategy. Many Fed officials have suggested that as long as the unemployment rate is low, the central bank doesn’t need to cut rates to spur more spending and hiring. Unemployment declined to 4.3% in March, from 4.4%.

A key change economists will look for Wednesday is whether the Fed alters the statement it issues after each meeting to signal that it is possible that their next move could be either a rate cut or a hike. Right now, the statement indicates that any change to its rate would be a cut. According to minutes of its last meeting in March, many of the 19 participants on the Fed’s rate-setting committee support considering a hike, though it’s likely short of a majority.