In a surprise development, four Federal Reserve policymakers dissented to Wednesday's Federal Open Market Committee (FOMC) decision to pause rates, the most dissents in a meeting since late 1992. In addition, Fed Chairman Jerome Powell plans to stay on as Fed governor even after his chairmanship ends May 15, though he gave no timetable. His term as governor ends in early 2028.

Only one policymaker, Fed Gov. Stephen Miran, opposed the decision to pause rates at the current level between 3.5% and 3.75%, where they've been since December. He favored cutting rates. Three other policymakers opposed what they called the "easing bias" in the statement, signaling they don't agree with the statement's dovish tone.

While it was no surprise to see Miran dissent in favor of lower rates, the three dissents from voters who didn't support inclusion of the easing bias was very interesting. This suggests that there is chatter about potential rate hikes, despite what the statement says. The three dissents against the Fed's easing bias were Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan.

The 8-4 decision to pause was no surprise, and markets are priced for steady policy the next few months as policymakers wrestle with economic impacts from the war in Iran and spiking crude oil prices. The Fed is likely to do nothing for a few meetings—an extended pause—to see how the rise in oil and gas prices play out in the economy. Over the short run, those factors have lifted inflation, preventing the Fed from cutting anytime soon.

Major indexes, already slightly lower before the Fed meeting, lost more ground after the decision but weren't down dramatically from recent highs. Treasury yields, which have been steadily rising over the last week, were already up for the day given higher oil prices. After the release of the statement, the 2-year yield initially rose another four basis points to 3.94% and the 10-year yield rose an additional two basis points to 4.41%, the highest in a month.

In its statement accompanying the decision about the federal funds rate—the rate that banks charge each other for overnight loans—the FOMC noted that "developments in the Middle East are contributing to a high level of uncertainty about the economic outlook." The March statement said implications of the conflict on the economy were uncertain.

Another notable change in wording from the last Fed statement in mid-March is that the statement now says inflation "is elevated," a change from the March wording that inflation "remains somewhat elevated." This is partly due to the increases in global energy prices.

Reading between the lines, the statement didn't change the economic outlook much while highlighting that there is now heightened uncertainty. The three dissenters seem to be a bit more worried that the Fed shouldn't just be looking through these short-term price increases.

The dissents also could represent an acknowledgment that the risks to higher inflation are greater than the statement implies. With inflation above the Fed's 2% target for five years and counting, the committee can't be complacent.

With the rate decision baked in before the meeting and no projections in conjunction with the statement today, focus turned to Powell's plan to remain on the Fed's board even after President Trump's nominee Kevin Warsh takes over as chairman.

The Senate Banking Committee today approved the Warsh nomination. The full Senate will likely vote on Warsh the week of May 11 after it returns from next week's recess, meaning Warsh will probably handle the next FOMC meeting on June 16-17 when the Fed releases updated economic and rate projections along with a rate decision.

In his press conference, Powell said he'd keep a low profile on the board but wants to stay on until he's convinced the administration's criminal investigation into Powell is over. 

Powell's decision pushes back the potential for the committee to run a bit more dovish, since the administration would prefer to replace him (if and when the opportunity arises) with someone who prefers lower rates. But that's likely a moot point for now given the hawkish dissents.

"I'm waiting for the investigation to be well and truly over with finality and transparency," Powell said. He added his concern is about "the series of legal attacks on the Fed which threaten our ability to conduct monetary policy without considering political factors." Powell noted, "These legal actions by the administration are unprecedented in our 113-year history and there are ongoing threats of additional such actions."

He predicted a normal transition process for Warsh.

The next Fed meeting in June will likely be the first one chaired by Warsh, who's generally sounded dovish about rates. He's still only one vote, and high fuel costs could keep the Fed on pause even if Warsh lobbies for cuts, barring a quick resolution to the war.

In trading just after today's meeting, the futures market indicated virtually no chance of a rate cut at the next meeting in June, according to the CME FedWatch Tool, and less than a 10% chance of a rate cut at some point this year. Chances of a rate hike before year-end rose to 3.5% after the meeting from zero on Tuesday, and that metric is worth watching considering the hawkish dissents today.

Chances of a rate hike this year rose last month in futures trading thanks to fast-ascending oil prices. For more clarity on any hike discussion that may have taken place in the FOMC's debate leading to today's decision, investors might want to check the meeting minutes when they're released three weeks from now. Generally solid economic data may be another factor besides oil-driven inflation that the more hawkish Fed policymakers have in mind.