Federal Reserve policymakers convened their latest meeting with inflation still running well above the central bank’s 2% target, an Iran war that has sent energy prices sharply higher, and a new chair in Kevin Warsh who must now navigate a committee more divided than at any point in recent memory, according to meeting minutes released Wednesday.
The Federal Open Market Committee voted to hold its benchmark interest rate steady in a range of 3.5% to 3.75%, a decision that drew four dissenting votes — the most since 1992 — reflecting the depth of disagreement over where monetary policy should head next.
Four Dissents and a War
The minutes of the April FOMC meeting laid bare the tensions coursing through the rate-setting panel. A majority of officials indicated that further rate increases would likely become necessary if inflation continues to run persistently above 2%, a formulation that marks a significant shift from the committee’s earlier stance. Three of the four dissenters were regional Fed presidents who pressed for language removing any suggestion that the next move would be a rate cut — what Wall Street has long read as the committee’s easing bias.
Several participants argued the post-meeting statement should reflect a bias toward cutting rates, but a majority prevailed in keeping language that markets interpret as signalling a rate reduction is the more probable next step. The Iran conflict, which has driven a surge in energy prices and pushed headline inflation above 3%, dominated the discussion. Officials broadly agreed the war carries “significant implications” for the Fed’s dual mandate of full employment and price stability, though they differed on how long the inflationary impulse from the conflict would last.
“The vast majority of participants noted an increased risk that inflation would take longer to return to the Committee’s 2% objective than they had previously expected,” the minutes stated. Even the Fed’s preferred core inflation gauge — which strips out food and energy — has been climbing, defying the conventional wisdom that supply shocks warrant a patient, look-through approach to rate-setting.
Warsh Takes the Helm
The April meeting was the last to be chaired by Jerome Powell, whose tenure has spanned a once-in-a-century pandemic, a period of record inflation, and now a geopolitical shock that is testing the central bank’s credibility on price stability. Powell, who chose to remain on the Board of Governors rather than depart entirely, has two years remaining on his current term — an arrangement without modern precedent, with no other Fed chair having stayed on the board in nearly 80 years.
Kevin Warsh, the former Fed governor nominated by President Donald Trump, now assumes the chairmanship at a moment of acute difficulty. Trump has been explicit that he expects the Fed to be cutting rates, but market pricing has shifted to point toward a higher probability that the committee’s next move will be a rate increase, either by late 2026 or early 2027. Goldman Sachs projects the Fed’s chief inflation forecasting measure will register an annual rate of 3.3% for April when that figure is released.
Warsh’s central challenge will be to persuade a divided committee that productivity gains from artificial intelligence will prove disinflationary over time — a thesis that, if correct, would counter the temporary jolt from higher energy costs and allow the Fed to move back toward accommodation. Sceptics note that AI-linked investment has yet to demonstrate a sustained disinflationary effect on the broader price level, and that the Fed’s credibility as an inflation-fighting institution is at stake if the war’s impact proves more durable than anticipated.
Nomura Revises Forecast
On the street, forecast revisions are piling up. Nomura on Thursday abandoned its call for Fed rate cuts in 2026, citing persistent inflation momentum and the risk that the Iran conflict keeps energy prices elevated through the second half of the year. The bank now expects the Fed to hold rates steady through December 2026, with the first reduction — if it comes — not arriving until 2027 at the earliest.
The divergence between Warsh’s apparent preference for accommodation and the data’s insistence on restraint sets the stage for what analysts describe as the most contested policy environment the Fed has faced in a generation. How quickly AI-driven productivity gains show up in the inflation data, and how long Iran-related supply disruptions persist, will determine whether Warsh can hold together a majority — or whether further dissents await.
