Federal Reserve Poised for Initial Interest Rate Reduction in 2025 Amid Influence from Trump's Pressure
The US Federal Reserve is set to make a significant decision at the end of its two-day policy meeting in 2025, with expectations of a 25 basis points interest rate cut. However, the situation is far from clear-cut, as political influence and internal divisions threaten to complicate matters.
President Donald Trump's nomination of his key economic adviser, Stephen I. Miran, to the Fed's board of governors has added a new layer of complexity. Miran was sworn in as a Fed governor right before the FOMC meeting on September 16, 2025, following his nomination on September 2 and confirmation by the Senate on September 15.
However, Miran's confirmation without resigning from his role at the White House has faced criticism from Democratic lawmakers, who argue that it risks a sense of political influence over Fed decisions. This concern is not unwarranted, as history has shown that central banks under political influence often lead to suboptimal economic outcomes, such as higher inflation, lower growth, and more financial market volatility.
Meanwhile, the legal battle of Lisa Cook, the first Black woman on the Fed's board of governors, is also causing ripples. Trump fired Cook in August, sparking a legal fight. A federal appeals court ruled that Cook can remain in position while challenging her removal, but the Trump administration plans to appeal this outcome.
Economists will be monitoring this legal battle closely, as it could have broader implications for the bank.
The decision to lower rates is due to a weakening employment market. However, the pace and size of further cuts to come are less certain. Some members, such as Christopher Waller and Michelle Bowman, could dissent in favor of a 50 basis points interest rate reduction, while others, like Jeffrey Schmid, President of the Kansas City Fed, might dissent to keep rates unchanged to curb inflation.
This uncertainty is not surprising given the increased political attention on the Fed. Trump's actions have cast doubt over the Fed's rate-setting committee, and economists expect to see more divisions among the FOMC as policymakers balance between the risk of higher inflation and a deteriorating jobs market.
Since its last cut in December, the Fed has held interest rates at a range between 4.25-4.5%. The upcoming decision will be closely monitored, including whether Miran pushes for a large rate cut in his first FOMC meeting.
Employment concerns are anticipated to win out, even as inflation remains above 2%. However, the long-term implications of these decisions remain to be seen. As the Fed navigates these challenging waters, economists will be watching closely to understand the potential impact on the US economy.
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