The Federal Reserve held interest rates steady at its April 29 meeting.
Takeaway: Mortgage rates may rise slightly as Jerome Powell’s last Fed meeting as chair ended with some fireworks. The Board signaled an unusual amount of division over the future path of interest rates and, in a historically unprecedented move, Powell announced his decision to stay at the Fed after his chairmanship ends.
The current members of the Federal Open Markets Committee (FOMC) sent a wakeup call to anyone expecting lower rates with incoming chair Kevin Warsh. Mortgage rates may rise slightly as a result.
- While the FOMC held rates steady as expected, they sent as aggressive of a message as they reasonably could have in the post-meeting statement. For the first time since October 1992, there were four dissents. Governor Miran dissented as expected in favor of lowering rates, but, in a surprise, three members dissented because they “did not support inclusion of an easing bias.” In other words, they wanted to signal that the Fed’s next move does not have to be a cut.
- Realistically, the bar for the Fed to actually hike is very high and unlikely to be met. However, the news this week that Kevin Warsh’s confirmation was no longer stuck was met with a market reaction that indicated an expectation of lower rates in the new era. Today’s dissents are saying “not so fast”.
In a first-of-its-kind move, Chair Powell announced that he will continue to serve as a voting member of the FOMC, denying President Trump another seat on the committee.
- It’s a relatively unknown fact that Fed Governor terms are 14 years even though chair terms are only 4 years because historically, the only time an outgoing chair has stayed on the Board was at the President’s request. The current level of tension between the Fed and the White House, including Jeanine Pirro’s recent criminal investigation, is unprecedented, however. So if there was ever a time, the chair would break precedent, it would be now.
- In announcing his decision, Powell said, “I will continue to serve as a governor for a period for time to be determined. I plan to keep a low profile as a governor,…Things that happened in the last 3 months left me no choice but to see them through at least that long.” And asked when he would leave, he reiterated what he had said before that he was “waiting for the investigation to be well and truly over, with finality.”
- This decision does not impact Kevin Warsh’s ability to become the new chair starting May 15. When Fed governor Adriana Kugler abruptly resigned in August, the White House had anticipated this potential issue and placed CEA chair Stephen Miran in her seat with the understanding that he was warming a seat for the eventual chair. What this means is that the President does not get to nominate another person to fill Powell’s seat.
- The impact on rates is difficult to forecast and may take some time to materialize because this is another dramatic escalation of the tension between the Fed and the White House.
