Analysis: Fed leaves rates unchanged; Powell decides to stay, setting up Trump showdown

Jerome Powell announced Wednesday he will remain at the Federal Reserve after his chairmanship expires, citing what he called unprecedented attacks on the “independence” of the central bank.

His decision came as the Federal Reserve’s Open Market Committee (FOMC) decided again to leave interest rates unchanged, bucking President Donald Trump, who would like lower interest rates to help job creation and lower costs.

The Powell decision would mark the first time a departing Fed chair has stayed on as a governor since 1948, according to the Associated Press (AP).

It would also block Trump from filling the vacated board seat with someone the president chooses, the AP noted.

More importantly, it sets up a power struggle at the country’s central bank under a scenario analysts are calling “two Popes,” said the newswire.

That controversy could prevent the implementation of a cohesive monetary policy and put the institution under higher scrutiny.

Trump responded on Truth Social Wednesday night: “Jerome ‘Too Late’ Powell wants to stay at the Fed because he can’t get a job anywhere else – Nobody wants him.”

The Senate Banking Committee advanced Trump’s nominee for the chairmanship, former Fed governor Kevin Warsh, on a 13-11 party-line vote Wednesday, reported CNBC.

Now the nomination goes to a full Senate confirmation vote.

Warsh would take the seat currently held by Stephen Miran, a Trump appointee whose term expired in January, not the seat Powell is now holding open.

Also on Wednesday, the FOMC voted 8-4 to leave interest rates unchanged, with four dissents being the most since October 1992, noted CNBC.

Three regional bank presidents signaled they favor keeping rates unchanged, citing a persistent inflation threat, while one dissented in the opposite direction, pushing for an immediate cut, noted the official statement.

One expert read the three hawkish dissents as a direct message to the incoming chair.

“This is a new quarterback hitting the portal,” Jeff Kilburg, founder of KKM Financial, told CNBC. “This was the rest of the players letting him know, we’re not going to let you lead us here.”

Powell’s decision to stay compounds Warsh’s challenge, possibly setting up a power struggle.

With Powell still on the board as a governor with a full vote, any attempt to build consensus for rate cuts faces a more complicated internal dynamic.

Warsh has promised change at the Fed.

“After (the COVID-19 pandemic), when prices went up to the tune of 25-35% for virtually all deciles of the American people, that’s an indication that the Fed missed its mark,” Warsh told the Senate confirmation committee.

He said Fed policy currently “disproportionately helps those with financial assets” while “hardworking Americans are no doubt” still feeling the effects of inflation.

“I think that means a regime change [is needed] in the conduct of policy,” Warsh added.

Powell may be gambling that public opinion and institutional prestige will insulate the Fed.

But the numbers might not support that bet.

Gallup’s most recent data shows fewer than 50% of Americans have confidence in Powell, a figure that never recovered to majority levels after the inflation surge of 2021-2022.

And those numbers were polled in December 2025, before the new administration under Trump began to lobby for changes.

They also beg the question whether the Federal Reserve can slug it out in public over high profile policy failures.

The Cato Institute’s Norbert Michel argued this week that the entire fight over who chairs the Fed misses the deeper problem.

He noted U.S. Sen. Cramer, R-North Dakota, joked, “We should just have an AI Fed chairman. That way it’d be completely neutral.”

Discretionary Fed policy – with the freedom to improvise rather than follow a rules-based framework – is the structural flaw producing the inflation debacle, Michel argued.

Additionally, a constitutional question concerning the Fed itself has never been cleanly resolved.

Harvard Kennedy School’s Daniel Tarullo, a former Fed governor himself, published an analysis in 2024 laying out how the Supreme Court’s current direction could lead to a finding that the Fed’s structure, as Congress created it, is unconstitutional.

The core issue is whether Congress can properly delegate a core executive function to a body deliberately insulated from presidential direction.