The Fed Fights Back

They will not go quietly.

Today we had the first real return salvo in an ongoing war. No this is not about the Iran war. This war is much closer to home and has been going on for well over a year now.

The Administration as much as declared war on the Fed very early after President Trump took office for a second staggered term in an attempt to force drastically lower interest rates. He has attacked Powell’s leadership and credibility repeatedly. He has tried to fire sitting Governor Lisa Cook. His Justice Department has brought legal action against Powell for cost overruns on a 5 year fed renovation. The zeal with which he has gone after this Fed is unprecedented even by the standards of his previous administration.

This has created a lot of uncertainty recently about when a new Fed chair could get confirmed to fill Powell’s expiring term as chair and whether Powell would step down from the Fed or remain on the board after he was no longer the chair. Almost every chair resigns after a new chair gets confirmed, but these are unique times.

All of that uncertainty appears to have been resolved very quickly this week.

Due to the threat of legal action against the sitting Fed chair for basic testimony to Congress, Republican Senator Tom Tillis has made it clear he will not allow the President’s nominee for the next Fed Chair to get out of committee for a confirmation vote until the legal threat has been concluded. The President and the DOJ attorney Jeanine Pirro have been blatantly defiant for months in their determination to move forward with a prosecution of Chairman Powell for supposedly lying to Congress. A claim no one seems to believe there is any credible evidence for. Senator Tillis sees that as a clear use of power and prosecution in order to influence the actions of the Fed, and he decided to stand up to it.

Just this week the DOJ realized their bluff wasn’t going to work so they withdrew the legal action against Chairman Powell. This gave Senator Tillis the cover he needed to announce he would now allow the nomination of Kevin Warsh for the next Fed Chair to proceed.

However this action by the DOJ is hard to see as anything other than a last minute attempt to get passed Tillis’ refusal to advance the nomination out of committee now that Powell’s term as chair is about to expire. Pirro made it clear that she reserved the right to refile charges against Powell again if anything new were to come to light. It seems highly likely that the determination with which they have gone after Powell and the Fed did not suddenly get satisfied or dropped. It seems if they desire to continue to pressure the Fed and Mr. Powell, they will have little trouble finding something minor that they will deem to be new evidence having come to light which they will use as an excuse to bring charges again after Warsh is confirmed. We already have an example this week of that exact same thing happening with regard to former FBI director James Comey being indicted for a second time by the DOJ, this time for posting a picture of sea shells on a beach that spelled out 86 47, clearly a serious national security issue needing prosecution.

So in light of that reality, at today’s Fed meeting the Fed fought back twice. At the press conference Powell provided clarity on the uncertainty surrounding his future after his chairmanship ends. He declared that he will in fact defy almost all historical precedent and remain on the Fed Board as a Governor after he is no longer the chair until such time as all these legal threats to the Fed and Fed independence have been completely and fully resolved. This takes away one more appointment the President could have made to try to bend the committee more in his direction. He will certainly not be happy with this decision by Mr. Powell.

And Powell did not stand alone in his defiance to the administration’s threats against the Fed.

Today’s Fed meeting had the most dissenting votes since 1992. Many headlines are highlighting that, but these four dissenting votes do not show what dissent usually shows. Rather than discord, it instead shows unity and determination against an outside attack on the institution itself.

One of the dissents is the same automatic dissent we now get at every single meeting since the President’s hand picked yes man, Fed Governor Stephen Miran, took his spot on the committee in September of 2025. No matter what the committee decides, he votes no with the reason that they should have cut more. In September, October, and December of 2025 the Fed cut rates by 25 basis points. Miran voted no saying he thought at each meeting they should have cut 50 basis points instead of 25. In January, March, and April of 2026 the Fed held rates steady. Miran voted no saying he thought they should have cut 25 basis points at each meeting. Whatever action the Fed takes, Miran votes no asking for deeper cuts.

Fed Governor Miran Is A Cattle Prod

I wrote an article back in October explaining that is exactly what Miran was put on the committee to do. His job was to act as a cattle prod trying to cajole the Fed to keep moving toward lower rates. That is why he is there, and that is what he has continued to do at every single meeting. So his no vote is meaningless as to actual Fed committee thinking. He is not there to think. He is there to cajole, and that is exactly what he has done for 6 straight meetings. No one on the committee takes his votes or his arguments seriously because he has a well understood agenda and purpose.

The other three committee members that voted no did not do so to disagree with the decision to hold rates steady. The reason given was that they did not agree with a sentence that remained in the Fed statement from last month that they say indicates a future bias toward easing that they no longer believe is appropriate. Here is that statement:

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

You will notice this statement does not say that they expect additional adjustments or what direction those adjustments might be. It simply says that data will be used to consider any future adjustments. The reason given by these three dissenters was that the use of the word additional here implies any future adjustments would be a continuation in the same direction as previous adjustments which were cuts. That is a rather technical argument about the language that some Fed observers believe implies an easing bias, but since Fed language is parsed so carefully a number on members on the committee wanted the statement to be more explicitly neutral.

Given how minor the implication here is, was this really an issue worth having such a divided vote over? Aren’t they making a mountain out of a mole hill with this vote?

I think this was about a far more profound issue than that specific language. The timing is really important here now that the deck has been cleared to confirm the President’s hand chosen Fed Chair who has repeatedly stated he believes interest rates should be much lower. With this being Chairman Powell’s last Fed meeting as chair, they wanted to do more than just vote for no cut. They wanted to find a way to send a message to the President and most importantly to the new incoming Fed chair that they are not going to be an easy rubber stamp vote for any future attempts at arm twisting to get rate cuts.

Their focus on this minor language implication and all the follow-up discussions and explanations about it is the path they chose to send that message. This vote signals very clearly to the new chair that they see nothing in the data to support an interest rate cut anytime soon.

The administration has tried its best to twist the arm of the Fed through jawboning, name calling, threats, attempts at firing, and legal action. All of these have been an escalating declaration of war on the Fed. The Fed has kept its powder dry until today, but they just fired back with multiple clear verbal declarations. Powell said he won’t back down, he won’t leave, and he won’t go quietly. At least 3 other members of the Fed voting board said they are ready for battle and will fight any attempts at manipulation. When you declare war on an opponent, you better be ready for their response.

The administration has been expecting surrender. What they got today was multiple shots fired across their bow. The President is losing this war with the Fed because his war has become too brazen and overt. Instead of getting compliance he is getting defiance. The Fed has shown quiet courage and resolve this entire time. Today they went a step further. Today they fought back and there was nothing quiet about it.

Further rate cuts should not be expected anytime soon. Rate cuts may not be justified at this time, or they may just be a casualty of war.