Fed intrigue continues

Incoming Federal Reserve Chair Kevin Warsh will inherit a divided room and plenty of uncertainty. As expected, the Fed chose to remain on hold last week. More surprising was the 8-4 split vote. The four accompanying dissents were the most since 1992. Governor Stephen Miran again advocated for a 25 basis-point cut, while three others objected to the statement’s easing bias, likely signaling a preference for a more symmetrical policy outlook considering inflationary pressures.

In what was likely his final press conference, Fed Chair Powell signaled that monetary policy remains in a holding pattern. He and the majority of the committee would like to see a stabilization of energy markets and tariffs before considering rate actions.

Powell also announced his plans to remain on the Board of Governors for some time, at least until he believes the legal challenges facing the institution have subsided. He emphasized that he does not intend to act as a “shadow chair,” but rather to operate in the background. Powell seems intent on defending the institution’s independence at a time when concerns about influence from the executive branch are running high.

On the data front, the US economy appears on steady footing for now. First-quarter GDP grew 2%, rebounding from a weak fourth quarter, though still coming in a little shy of expectations. At the same time corporate earnings have been very strong, and consensus estimates for 2026 earnings are up nearly 20% year-over-year. This strength has been driven by a broadly resilient US consumer and a continuous investment in AI and all its accompanying infrastructure. However, much can still change, as the full impact of the oil market disruption remains unclear. And while households appear healthy from a distance, conditions are more nuanced below the surface.