BNP Paribas flags concerns for interest-rate outlook after divisive Fed vote

So much for Fed-speak.

Judging from the language in its official post-meeting statement, the Federal Open Market Committee appears to signal it could cut benchmark interest rates this year -- or even consider raising them.

The FOMC, in a decisive 8-4 vote on April 29, held the benchmark Federal Funds Rate steady at 3.50% to 3.75%.

The primary point of the opposing votes: whether the Fed should be more explicit that the next monetary-policy step may not be a rate cut but rather a rate hike as inflation risks rise due to the Iran War.

But a note from BNP Paribas indicates the FOMC remains committed to holding the funds rate steady pending significant economic changes yet with a focus on the impact the eight-week Iran War has on energy prices.

"We believe the FOMC is firmly on hold, consistent with our expectation for unchanged monetary policy into 2027,'' according to the note from Chief U.S. Economist James Egelhof and Head of U.S. Rates Strategy Guneet Dhingra.

The note also suggests that the three FOMC officials who opposed the statement's language were in fact signalling to incoming Fed Chair Kevin Warsh -- long an advocate for lower rates as is President Donald Trump -- that the central bank's decisions will remain data-driven and not influenced by political pressure from the executive branch.

Powell clarified FOMC statement language

"The center is moving toward a more neutral place," outgoing Fed Chair Jerome Powelltold the post-meeting press conference.

These comments came alongside a number of approving references to market pricing, which prices in roughly symmetric risks to the funds rate path over the year, the note said.

Symmetric risks are scenarios where potential gains and losses are balanced and the probability distribution of outcomes is evenly distributed around the mean, such as a 50/50 coin flip.

"Powell's argument for retaining the easing-bias language seems less about the FOMC actually believing in it, in our view, and more about a desire to defer to future nominee Chair Kevin Warsh…in deciding what to do about it, combined with a preference to make changes slowly in an environment of uncertainty,'' the note said.

Historic FOMC vote reflects 8-4 divide

It was the first time in more than 30 years the FOMC vote reflected four dissents.

It was the FOMC's third pause after cutting rates by 75 basis points during its last three meetings of 2025 due to a weakening labor market.

The FOMC statement said that "developments in the Middle East are contributing to a high level of uncertainty about the economic outlook."

"The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,'' the statement said.

Why three of the FOMC officials dissented

Cleveland Fed President Beth M. Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie K. Logan dissented. This is a high number for FOMC dissenting votes, showing a significant internal shift away from wanting to cut rates.

The statement said the regional bank heads "supported maintaining the target range for the Federal Funds Rate but did not support inclusion of an easing bias in the statement at this time."

Related: Fed drops rate-cut bombshell

Powell said that the center of the committee is "moving toward a more neutral place."

A neutral state is when an economy operates at sustainable growth with stable inflation and full employment without overheating or recessionary pressure.

It can also mean interest rates move in either direction.

But Powell added: "People are not saying that we need to hike now."

Traders look to 2027 for rate clarity

Fed Governor Stephen I. Miran, the other dissenter, voted against the "wait-and-see" approach, preferring to lower the target range for the funds rate by 25 basis points. Miran, the most dovish of the Board of Governors, will be replaced by Warsh later this spring.

Traders at the CME Group FedWatch Tool are pricing in the next cut in benchmark interest rates as late 2027, almost four quarters later than what was expected at the beginning of this year.

"With a symmetric bias now priced in, and recent data having been strong, we think markets will be quicker to price in a rate cut on any negative news on the U.S. economy, but will keep a higher bar for pricing in rate hikes,'' the BNP Paribas note said.

Related: Debates over Fed 2026 rate cuts may surprise you

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This story was originally published May 1, 2026 at 10:37 AM.