Rate Hike Talk Returns as Fed Posts Most Divided Meeting Since 1992

On May 20, Reuters reported that the minutes from the Fed's April 28-29 meeting — Jerome Powell's last meeting as chair — showed the most fractured Federal Open Market Committee in over three decades. Four policymakers dissented. The last time that happened was 1992.

Inflation Accelerates Sharply

The Commerce Department reported April 30 that the PCE price index hit 3.5% annually in March, up from 2.8% in February, according to CNN. That's a 0.7% monthly jump — faster than the 0.4% pace the month before.

According to Financial Post, April's PCE reading is expected to show 3.8% annual inflation — a full percentage point above February's level in just two months. That would be the biggest two-month acceleration since late 2021.

Core inflation — stripping out food and energy — also picked up, likely hitting its fastest pace since late 2023, per Financial Post.

War in the Middle East Drives Energy Prices

The US-Israeli conflict with Iran, now entering roughly its third month, has choked off the Persian Gulf and Strait of Hormuz — a critical chokepoint for global oil, natural gas, and fertilizer trade, according to CNN. Gas prices surged at record rates in March and remained elevated through April.

Fed Splits Into Hawkish and Dovish Camps

According to Reuters via NBC News, the April minutes revealed two distinct blocs inside the Fed:

• A growing hawkish bloc worried inflation will stay elevated and wants rate hikes on the table
• A shrinking dovish bloc still leaning toward eventual cuts

A majority of policymakers said some tightening may be needed if inflation stays persistently above the 2% target. Many wanted to strip the post-meeting statement of any language suggesting the Fed still had an "easing bias."

Fed Governor Christopher Waller said Friday he supports signaling that the next rate move is equally likely to be a hike as a cut, per Financial Post.

Warsh Takes the Chair Amid Internal Conflict

Kevin Warsh was sworn in as Fed chair at a White House ceremony hosted by President Trump, who appointed him and has publicly and repeatedly demanded deep rate cuts, according to NBC News.

Warsh has previously laid out arguments for lower rates. But the Fed he's walking into has a majority of members now leaning toward raising them.

The Dissents Reveal Multiple Factions

The four dissents were not all pointing the same direction. According to NBC News, one dissenter was Stephen Miran — Chair of the Council of Economic Advisers and another Trump appointee — whose position adds complexity to any simple narrative about institutional disagreement.

Borrowing Costs Unlikely to Fall Soon

Mortgages aren't getting cheaper. Car loans aren't getting cheaper. Credit card rates aren't getting cheaper anytime soon.

If the PCE hits 3.8% in April as expected, and if energy prices stay elevated, the Fed's next move may well be a rate hike — the opposite of what Trump has been demanding.

Consumer sentiment is already at record lows, per Financial Post. The job market has downshifted, per CNN's reporting of NerdWallet senior economist Elizabeth Renter. Washington is in a political tug-of-war over the institution that controls the price of borrowing money.

The Fed is divided. The chair is brand new. The war shows no signs of de-escalating. And inflation is accelerating.