Shocking Divide! Federal Reserve Internal Division Reaches 30-Year High, Powell Releases Key Signal
2026-04-30 06:38:59
On Wednesday afternoon local time (early morning of April 30 Beijing time), the Federal Reserve (Fed) announced after its highly anticipated policy meeting that it would maintain the benchmark interest rate unchanged. While this decision was largely expected, the intensity of the internal debate behind it far exceeded external expectations. The vote resulted in eight votes in favor and four against, a stark contrast that signifies the most profound division within the Fed's decision-making body on interest rates since 1992.
In the policy statement, most members expressed deep concern about the escalating upward trend in inflation. However, this statement was explicitly opposed by three policymakers. They argued that, given the current economic environment, the Federal Reserve should not send any further signals to the market suggesting a possible future reduction in borrowing costs. These three dissenters advocated removing any wording in the policy statement that implied an "accommodative bias" as soon as possible to avoid misleading market expectations.
Furthermore, the fourth policymaker to vote against the cut held a completely different position. This member believed that, faced with the risk of slowing economic growth, the Federal Reserve should act decisively and cut interest rates by 25 basis points directly. This demonstrates that the committee was effectively divided into three camps: one favored maintaining the status quo but adjusting policy communication; another insisted on holding rates steady; and yet another called for an immediate start to the rate-cutting cycle. This multi-faceted situation reflects the high degree of uncertainty surrounding the US economic outlook.
At the subsequent press conference, Federal Reserve Chairman Jerome Powell provided a systematic response to the aforementioned disagreements and the future direction of policy. He first emphasized that the Fed is fully capable of prudently determining the magnitude and timing of subsequent policy rate adjustments based on the latest economic data, the evolving outlook, and the balance of risks. He explicitly added that monetary policy does not operate along a pre-set track, but rather makes independent decisions at each meeting based on the most comprehensive information available at that time.
Powell repeatedly reiterated that the Fed's current monetary policy stance is at a point where maintaining the status quo is appropriate. He pointed out that current interest rates are close to the upper end of the reasonable neutral interest rate range and have a slight tightening bias. Therefore, most members believe that the most prudent approach is to remain on the sidelines and wait for further clarity on the economic situation before taking action based on the actual circumstances. He also revealed that the prevailing opinion within the committee is gradually shifting towards a more neutral policy direction, which means that the urgency for future interest rate hikes has significantly decreased.
On inflation, Powell acknowledged that price pressures stemming from tariffs are expected to gradually subside this year, with signs of easing soon. However, he also warned that similar cost-increasing events continue to occur. Substantially reducing inflation to the 2 percent target could be quite costly. The Fed's commitment to this goal remains unwavering and consistent.
Powell further explained that the Federal Reserve operates under the fundamental assumption that tariffs have only a one-off price effect. Based on this assessment, they anticipate that tariff-driven inflation will decline over the next two quarters. However, he also acknowledged that rising energy prices will indeed push up overall inflation in the short term. According to estimates based on the Consumer Price Index (CPI), the year-on-year increase in the Personal Consumption Expenditures (PCE) price index in March may reach 3.5%, while the core PCE price index is expected to rise to 3.2%. Short-term inflation expectations have already risen somewhat.
Nevertheless, Powell also stated that the labor market is gradually showing increasing signs of stabilization. The slowdown in job growth can be partly attributed to a decrease in immigration. He emphasized that the Federal Reserve does not believe the current labor market is the source of inflation. Furthermore, labor demand has slowed significantly and even weakened. Powell also observed that the housing market remains sluggish, while business fixed investment is expanding rapidly.
During the press conference, Powell repeatedly addressed the sensitive issue of the Federal Reserve's independence. He stated bluntly that the Fed's independence is at risk. Every administration has attempted to use the Fed's policy tools for other purposes, and the Fed has consistently resisted such attempts. He emphasized that the Fed will not use monetary policy tools to achieve any goals outside its mandate.
Powell further pointed out that the Federal Reserve's independence is explicitly stipulated by law, and they must rely on legal means to ensure that monetary policy is formulated in an environment free from any political interference. He explained that the meaning of independence actually transcends the legal provisions themselves; the law constructs the necessary institutional environment for the political independence of monetary policy decisions. He firmly believes that the Federal Reserve has the ability to return to its previous model of operating independently. Some of the actions taken by the government against the Federal Reserve are unprecedented, and maintaining the Federal Reserve's independence is a crucial component of the American economic foundation; only in this way can the public place their trust in it.
Regarding the forward guidance in the policy statement, Powell revealed that the committee had conducted thorough and comprehensive discussions. Most members currently do not intend to remove the dovish language, and he himself believes that no changes are necessary at this meeting. Most members feel there is no need to rush to adjust the policy stance. However, Powell also acknowledged that, within the current economic cycle, whether to adjust the forward guidance has become an increasingly difficult and pressing question. The dovish stance could be removed as early as the next meeting, but there is no need to rush into a decision at this time.
Powell admitted that he himself has never been a staunch supporter of the so-called "dot plot." Proposals for significant adjustments to the dot plot or summary of economic projections did not receive widespread approval from the committee. He believes there are no fundamental problems with the Fed's communication, but considering moderate adjustments to the information delivery framework is reasonable. He noted that the Fed is almost the only major central bank that does not publish complete economic projections, and that viewing policy communication differently is perfectly natural worldwide.
Powell specifically mentioned the impact of rising energy prices and geopolitical risks. He stated that gasoline prices will largely depend on the duration of the closure of key straits. Whether consumer spending will decrease accordingly to offset the impact of inflation remains an open question. Recent developments in the Middle East have further increased uncertainty about the economic outlook, and the Federal Reserve will closely monitor subsequent developments in the region.
He explicitly stated that before considering interest rate cuts, he wanted to first see a clear downward trend in energy and tariff pressures. In the short term, rising energy prices will directly push up inflation, but the surge in energy prices may not have peaked yet. Currently, the Federal Reserve hasn't even reached the stage of discussing how to specifically view the energy price issue. He emphasized that strong consumer demand and continued robust demand from data centers are also contributing to energy-related pressures.
Near the end of the press conference, Powell also addressed his own future, a rare occurrence. He stated that he had long planned to retire, but recent events forced him to remain in office. He admitted that the current situation left him with no choice but to stay. His continued tenure is entirely due to certain policies implemented by the government. He will step down from the Federal Reserve when he deems the time appropriate, and until then, he pledged to work closely with the future chairman and provide full support.
Powell congratulated Kevin Warsh, the newly elected chairman, on the morning's vote. He believes Warsh is fully capable of the position and is confident that Warsh will stand up against external pressure. He revealed that he hadn't seen Warsh since a dinner in January. He anticipates a normal and customary transition of leadership at the Federal Reserve, with the change likely to be completed before June.
Throughout the press conference, Powell attempted to strike a balance amidst multiple contradictions: acknowledging inflationary pressures and unusual signals in the labor market while simultaneously alleviating market concerns about a hard landing; maintaining the image of unity within the Federal Reserve while confronting the biggest decision-making disagreement in nearly three decades; upholding statutory independence while dealing with unprecedented political pressure. His repeated emphasis on "case-by-case decision-making," "no predetermined path," and "wait-and-see" essentially points to the same judgment—the US economy is at a crossroads of high uncertainty. Whether it's a rate cut, a rate hike, or maintaining the status quo, every step will depend on subtle shifts in real-time data and the balance of risks. For market participants, this means that previous trading logic based on clear forward guidance may need a complete re-evaluation. For ordinary people, neither gasoline prices nor employment prospects are likely to see a clear turnaround in the short term.
According to aggregated probabilities published by CME Group, traders now expect the probability of a rate hike this year to rise to 13.5% (from 0% before the Fed's decision), and the probability of a rate hike before April 2027 to be about 40%, compared to about 20% before the Fed's decision. CME is the trading platform for federal funds rate futures.
I. The fierce clash behind the decision-making process: a rare standoff between three camps
In the policy statement, most members expressed deep concern about the escalating upward trend in inflation. However, this statement was explicitly opposed by three policymakers. They argued that, given the current economic environment, the Federal Reserve should not send any further signals to the market suggesting a possible future reduction in borrowing costs. These three dissenters advocated removing any wording in the policy statement that implied an "accommodative bias" as soon as possible to avoid misleading market expectations.
Furthermore, the fourth policymaker to vote against the cut held a completely different position. This member believed that, faced with the risk of slowing economic growth, the Federal Reserve should act decisively and cut interest rates by 25 basis points directly. This demonstrates that the committee was effectively divided into three camps: one favored maintaining the status quo but adjusting policy communication; another insisted on holding rates steady; and yet another called for an immediate start to the rate-cutting cycle. This multi-faceted situation reflects the high degree of uncertainty surrounding the US economic outlook.
II. Powell's core statement at the press conference: Decisions are made on a case-by-case basis, with no predetermined path.
At the subsequent press conference, Federal Reserve Chairman Jerome Powell provided a systematic response to the aforementioned disagreements and the future direction of policy. He first emphasized that the Fed is fully capable of prudently determining the magnitude and timing of subsequent policy rate adjustments based on the latest economic data, the evolving outlook, and the balance of risks. He explicitly added that monetary policy does not operate along a pre-set track, but rather makes independent decisions at each meeting based on the most comprehensive information available at that time.
Powell repeatedly reiterated that the Fed's current monetary policy stance is at a point where maintaining the status quo is appropriate. He pointed out that current interest rates are close to the upper end of the reasonable neutral interest rate range and have a slight tightening bias. Therefore, most members believe that the most prudent approach is to remain on the sidelines and wait for further clarity on the economic situation before taking action based on the actual circumstances. He also revealed that the prevailing opinion within the committee is gradually shifting towards a more neutral policy direction, which means that the urgency for future interest rate hikes has significantly decreased.
III. Inflationary pressures and the impact of tariffs: a one-off shock or a lasting threat?
On inflation, Powell acknowledged that price pressures stemming from tariffs are expected to gradually subside this year, with signs of easing soon. However, he also warned that similar cost-increasing events continue to occur. Substantially reducing inflation to the 2 percent target could be quite costly. The Fed's commitment to this goal remains unwavering and consistent.
Powell further explained that the Federal Reserve operates under the fundamental assumption that tariffs have only a one-off price effect. Based on this assessment, they anticipate that tariff-driven inflation will decline over the next two quarters. However, he also acknowledged that rising energy prices will indeed push up overall inflation in the short term. According to estimates based on the Consumer Price Index (CPI), the year-on-year increase in the Personal Consumption Expenditures (PCE) price index in March may reach 3.5%, while the core PCE price index is expected to rise to 3.2%. Short-term inflation expectations have already risen somewhat.
IV. Abnormal Signals in the Labor Market: Imbalances and Hidden Issues
Powell's description of the labor market is particularly noteworthy. He pointed out that the US unemployment rate is now very close to the natural rate of unemployment, but the labor market is exhibiting an unusual and worrying imbalance. Specifically, this manifests as a significant decrease in the number of people voluntarily resigning, a sluggish hiring activity by companies, and almost no new jobs being created. A segment of the population is personally experiencing the grim reality of the labor market situation.Nevertheless, Powell also stated that the labor market is gradually showing increasing signs of stabilization. The slowdown in job growth can be partly attributed to a decrease in immigration. He emphasized that the Federal Reserve does not believe the current labor market is the source of inflation. Furthermore, labor demand has slowed significantly and even weakened. Powell also observed that the housing market remains sluggish, while business fixed investment is expanding rapidly.
V. The Federal Reserve's Independence Faces Challenges: Legal Approaches and Political Interference
During the press conference, Powell repeatedly addressed the sensitive issue of the Federal Reserve's independence. He stated bluntly that the Fed's independence is at risk. Every administration has attempted to use the Fed's policy tools for other purposes, and the Fed has consistently resisted such attempts. He emphasized that the Fed will not use monetary policy tools to achieve any goals outside its mandate.
Powell further pointed out that the Federal Reserve's independence is explicitly stipulated by law, and they must rely on legal means to ensure that monetary policy is formulated in an environment free from any political interference. He explained that the meaning of independence actually transcends the legal provisions themselves; the law constructs the necessary institutional environment for the political independence of monetary policy decisions. He firmly believes that the Federal Reserve has the ability to return to its previous model of operating independently. Some of the actions taken by the government against the Federal Reserve are unprecedented, and maintaining the Federal Reserve's independence is a crucial component of the American economic foundation; only in this way can the public place their trust in it.
VI. Forward-looking guidance and communication strategies: Whether to adjust them is still under discussion.
Regarding the forward guidance in the policy statement, Powell revealed that the committee had conducted thorough and comprehensive discussions. Most members currently do not intend to remove the dovish language, and he himself believes that no changes are necessary at this meeting. Most members feel there is no need to rush to adjust the policy stance. However, Powell also acknowledged that, within the current economic cycle, whether to adjust the forward guidance has become an increasingly difficult and pressing question. The dovish stance could be removed as early as the next meeting, but there is no need to rush into a decision at this time.
Powell admitted that he himself has never been a staunch supporter of the so-called "dot plot." Proposals for significant adjustments to the dot plot or summary of economic projections did not receive widespread approval from the committee. He believes there are no fundamental problems with the Fed's communication, but considering moderate adjustments to the information delivery framework is reasonable. He noted that the Fed is almost the only major central bank that does not publish complete economic projections, and that viewing policy communication differently is perfectly natural worldwide.
VII. Energy Prices and Geopolitical Risks: The Middle East Situation Becomes a New Variable
Powell specifically mentioned the impact of rising energy prices and geopolitical risks. He stated that gasoline prices will largely depend on the duration of the closure of key straits. Whether consumer spending will decrease accordingly to offset the impact of inflation remains an open question. Recent developments in the Middle East have further increased uncertainty about the economic outlook, and the Federal Reserve will closely monitor subsequent developments in the region.
He explicitly stated that before considering interest rate cuts, he wanted to first see a clear downward trend in energy and tariff pressures. In the short term, rising energy prices will directly push up inflation, but the surge in energy prices may not have peaked yet. Currently, the Federal Reserve hasn't even reached the stage of discussing how to specifically view the energy price issue. He emphasized that strong consumer demand and continued robust demand from data centers are also contributing to energy-related pressures.
VIII. Powell's Personal Stance and Future Future: A Reluctant Stand
Near the end of the press conference, Powell also addressed his own future, a rare occurrence. He stated that he had long planned to retire, but recent events forced him to remain in office. He admitted that the current situation left him with no choice but to stay. His continued tenure is entirely due to certain policies implemented by the government. He will step down from the Federal Reserve when he deems the time appropriate, and until then, he pledged to work closely with the future chairman and provide full support.
Powell congratulated Kevin Warsh, the newly elected chairman, on the morning's vote. He believes Warsh is fully capable of the position and is confident that Warsh will stand up against external pressure. He revealed that he hadn't seen Warsh since a dinner in January. He anticipates a normal and customary transition of leadership at the Federal Reserve, with the change likely to be completed before June.
Summary: A crossroads filled with uncertainty
Throughout the press conference, Powell attempted to strike a balance amidst multiple contradictions: acknowledging inflationary pressures and unusual signals in the labor market while simultaneously alleviating market concerns about a hard landing; maintaining the image of unity within the Federal Reserve while confronting the biggest decision-making disagreement in nearly three decades; upholding statutory independence while dealing with unprecedented political pressure. His repeated emphasis on "case-by-case decision-making," "no predetermined path," and "wait-and-see" essentially points to the same judgment—the US economy is at a crossroads of high uncertainty. Whether it's a rate cut, a rate hike, or maintaining the status quo, every step will depend on subtle shifts in real-time data and the balance of risks. For market participants, this means that previous trading logic based on clear forward guidance may need a complete re-evaluation. For ordinary people, neither gasoline prices nor employment prospects are likely to see a clear turnaround in the short term.
According to aggregated probabilities published by CME Group, traders now expect the probability of a rate hike this year to rise to 13.5% (from 0% before the Fed's decision), and the probability of a rate hike before April 2027 to be about 40%, compared to about 20% before the Fed's decision. CME is the trading platform for federal funds rate futures.
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