The US Federal Reserve is expected to announce its first interest rate cut of 2025 on Wednesday. This decision comes as the central bank navigates competing forces, including heightened political pressure and potential divisions among its ranks. The interest rate cut, anticipated to be 25 basis points, is largely driven by a weakening employment market.

President Donald Trump’s recent actions have introduced uncertainty into the Fed’s decision-making process. In August, Trump moved to fire Fed Governor Lisa Cook, sparking a legal battle that could have impacted her attendance at the rate meeting. Additionally, Trump nominated his economic adviser, Stephen Miran, to the Fed’s board of governors, following an unexpected resignation last month. Miran was sworn in as a Fed governor just before the Federal Open Market Committee (FOMC) gathering began.

Economists predict that the FOMC will experience more divisions as policymakers balance the risk of higher inflation due to Trump’s new tariffs and a deteriorating jobs market. Typically, the Fed would aim to keep rates higher to bring inflation back to its 2% target or slash rates to support a weakening labor market. This time, employment concerns are expected to take precedence, despite inflation remaining above 2.0%.

The economic picture suggests that Fed officials may dissent in both directions, even if most vote for a 25 basis points cut. This situation has not occurred since 2019. KPMG chief economist Diane Swonk expressed concerns about both inflation and a recession, describing the current state as a “stagflation reality.” Fed governors Christopher Waller and Michelle Bowman, who previously voted against holding rates steady, may now dissent in favor of a bigger 50 basis points reduction. Miran could also join them, while officials like Kansas City Fed President Jeffrey Schmid might dissent in the other direction, pushing to keep rates unchanged to curb inflation.

Since its last cut in December, the Fed has held interest rates at a range between 4.25% and 4.50%. The confirmation of Miran without resigning from the White House Council of Economic Advisers has raised concerns about political influence over Fed decisions. Economists will be monitoring the outcome of the FOMC’s vote and whether Miran pushes for a large rate cut, as repeatedly advocated for by Trump.

The legal battle surrounding Cook, the first Black woman on the Fed’s board of governors, could have broader implications for the bank. A federal appeals court ruled that Cook could remain in position while challenging her removal, but the Trump administration plans to appeal this outcome. The increased political attention on the Fed is concerning, as history has shown that central banks under political influence often produce suboptimal economic outcomes, including higher inflation, lower growth, and more financial market volatility.