The U.S. Federal Reserve is expected to announce its first interest‑rate cut of 2025 on Wednesday, likely a 25‑basis‑point reduction driven primarily by a weakening employment market. This decision comes amid heightened political pressure and potential divisions within the Fed’s ranks.
President Donald Trump’s recent actions have added uncertainty to the Fed’s deliberations. In August, he moved to fire Fed Governor Lisa Cook, sparking a legal battle that could have affected her attendance at the rate‑setting meeting. At the same time, Trump nominated his economic adviser Stephen Miran to the Fed’s board of governors after an unexpected resignation last month. Miran was sworn in just before the Federal Open Market Committee (FOMC) gathering began.
Economists anticipate that the FOMC will be more divided than usual as policymakers balance the risk of higher inflation—exacerbated by Trump’s new tariffs—against a deteriorating jobs market. Traditionally, the Fed would keep rates higher to bring inflation back to its 2 % target or cut rates to support a weakening labor market. This time, employment concerns are expected to take precedence, even though inflation remains above 2 %. As a result, officials may dissent in both directions, though most are likely to vote for a 25‑basis‑point cut—a scenario not seen since 2019.
KPMG chief economist Diane Swonk warned of “stagflation reality,” citing worries about both inflation and a recession. Fed governors Christopher Waller and Michelle Bowman, who previously voted against holding rates steady, may now dissent in favor of a larger 50‑basis‑point cut, potentially joined by Miran. Conversely, officials such as Kansas City Fed President Jeffrey Schmid might dissent the other way, advocating for unchanged rates to curb inflation.
Since its last cut in December, the Fed has kept interest rates in the 4.25 %–4.50 % range. Miran’s confirmation without resigning from the White House Council of Economic Advisers has raised concerns about political influence over Fed decisions. Economists will watch the FOMC vote closely to see whether Miran pushes for a substantial cut, as Trump has repeatedly advocated.
The legal battle over Cook, the first Black woman on the Fed’s board, could have broader implications. A federal appeals court allowed her to remain in position while challenging her removal, but the Trump administration plans to appeal. Increased political attention on the Fed is troubling, as history shows that central banks under political pressure often deliver suboptimal outcomes—higher inflation, slower growth, and greater financial‑market volatility.
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