• No change in Fed Funds range: 3.5% to 3.75%
• 8 to 4 vote: Most dissents since October 1992
• An “additional” complaint 
• Powell’s last meeting as Fed Chair but stays on…
• Bottom Line: Fed on hold, but wary about war inflation 
   

High uncertainty

For the third meeting in a row the Federal Reserve Open Market Committee left its short-term rate unchanged. Their press release had a couple of notable changes. Their position on inflation has been that it “remains somewhat” elevated. Today they acknowledged the reality of 3.5% inflation readings that are headed toward 4% by stating “inflation is elevated.” That is fairly strong language for the Fed.

The biggest change was the addition of the phrase “Developments in the Middle East are contributing to a high level of uncertainty” about the economic outlook.  

Last fall the Committee dropped the Fed Funds rate in three quarter-point steps, citing slowing job growth. Recall that two of these cuts came during the longest government shutdown, which skewed growth statistics lower. Today’s meeting marks the third meeting in a row where the members have left rates unchanged. Stephen Miran was the lone vote for a quarter-percent rate cut.

Additional complaint

Three regional bank presidents agreed to keep rates unchanged but wanted to change the press release to remove the word “additional.” This word has been in press releases for at least the last five meetings. The full sentence: 

“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.”

Since the last Fed rate action was a cut, these three voters believe it suggests that the Fed is biased toward cutting rates. We get the grammar but would suggest that their vote is more of a signal to markets that a rate increase may be the next rate change down the road. It may also signal to Warsh that they want an increase.

What’s next?

In his press conference Powell said he would step down as Chairman in May when his term ends. He is still a Board Governor until January 2028. He suggested that if the recent Justice Department inquiries are closed to his satisfaction, he may leave the Board before his term ends.

Former Governor Kevin Warsh was successfully voted out of the Senate Banking Committee earlier today. This paves the way for a full Senate approval and becoming the next Fed Chair. His nomination had been held up by Republican Senator Thom Tillis because he did not like the “bogus” Justice Department investigations into the Fed. 

Summary

Inflation is still a problem. Powell believes the oil price shock from the Iran vs. Everybody war is temporary. We believe the effects will be felt over a number of years in raw materials, fertilizer and plastic goods.

The economy is recovering from a multi-month industrial slowdown, followed by last fall’s government shutdown. We have never had all three policy levers in positive mode until this year. Monetary policy is very positive, with the Fed growing money supply above 4% per year. That leads inflation by two years.

Credit is still relatively easy to obtain for companies. The private credit loan problems appear largely confined to software companies. Finally, fiscal policy is running at full throttle, thanks to Congress pouring over a half trillion dollars in tax refunds and mortgage purchases into the economy from the One Big Beautiful Bill this year.

Keeping rates on hold is the right move, and we think the economy can skirt the worst of the war effects and perform well this year.

Please let us know how we can help you. 

Steve Orr is the Managing Director and Chief Investment Officer for Texas Capital Bank Private Wealth Advisors. Steve has earned the right to use the Chartered Financial Analyst and Chartered Market Technician designations. He holds a Bachelor of Arts in Economics from The University of Texas at Austin, a Master of Business Administration in Finance from Texas State University, and a Juris Doctor in Securities from St. Mary’s University School of Law. Follow him on X here.  

The contents of this article are subject to the terms and conditions available here. 

Texas Capital Private Bank™ refers to the wealth management services offered by the bank and non-bank entities comprising the Texas Capital brand, including Texas Capital Bank Private Wealth Advisors (PWA). Nothing herein is intended to constitute an offer to sell or buy, or a solicitation of an offer to sell or buy securities.

Investing is subject to a high degree of investment risk, including the possible loss of the entire amount of an investment. You should carefully read and review all information provided by PWA, including PWA’s Form ADV, Part 2A brochure and all supplements thereto, before making an investment.

Neither PWA, the Bank nor any of their respective employees provides tax or legal advice. Nothing contained on this website (including any attachments) is intended as tax or legal advice for any recipient, nor should it be relied on as such. Taxpayers should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor or legal counsel. The wealth strategy team at PWA can work with your attorney to facilitate the desired structure of your estate plan. The information contained on this website is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the authors and not necessarily those of PWA or the Bank.
 

©2025 Texas Capital Bank Wealth Management Services, Inc., a wholly owned subsidiary of Texas Capital Bank. All rights reserved. 

Texas Capital Bank Private Wealth Advisors and the Texas Capital Bank Private Wealth Advisors logo are trademarks of Texas Capital Bancshares, Inc., and Texas Capital Bank.

www.texascapitalbank.com     Member FDIC       NASDAQ®: TCBI