interest rates to potentially be lowered by the Federal Reserve for the first time in the year 2025, reportedly due to pressure from President Trump
The Federal Reserve is set to announce a 25-basis-point interest rate cut on Wednesday, according to the CME FedWatch tool, which shows a 96% chance of this move. The decision comes amid intense pressure from the Trump administration to lower rates and in response to labor market weakness and rising inflation.
Despite signs of inflation rising, Fed Chair Jerome Powell and policymakers are expected to respond to these economic challenges. In a panel discussion on monetary policy earlier this summer, Powell was asked whether the Fed would have cut interest rates more by now if it weren't for the tariffs spurring inflation concerns. Powell responded by saying that the Fed went on hold when it saw the size of the tariffs and where all inflation forecasts for the United States went up materially as a consequence of the tariffs.
The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, has trended further away from the 2% target since spring. Another popular inflation metric, the consumer price index (CPI), rose in August to 2.9% from the previous year. Core CPI inflation, which excludes food and energy prices, rose even higher to 3.1%.
The latest jobs reports from the Bureau of Labor Statistics show weakening job creation, with just 22,000 jobs added in August. This follows a revision lower of 911,000 jobs through March. Americans have hit a record low confidence in finding new jobs since tracking began in 2013.
Two Fed policymakers, Michelle Bowman and Christopher Waller, have dissented from the Fed's decisions in July to hold interest rates steady. This marks the first time since 1993 that two Fed policymakers have dissented in favor of rate cuts. In July 2024, there were no two FOMC members who dissented to leave interest rates unchanged and instead called for a 25-basis-point cut; rather, in a subsequent September 2025 meeting, Governor Stephen Miran was the lone dissenter preferring a larger 50-basis-point cut while the committee cut rates by 25 basis points.
Fed Governors Bowman and Waller each authored dissents calling for 25-basis-point cuts at the July meeting. If implemented, the cut would lower the target range of the benchmark federal funds rate to 4% to 4.25%. The Fed is considering adjusting monetary policy to support maximum employment and stable prices, which are under pressure.
Jerome Powell has said that in situations where both sides of the dual mandate show signs of weakness, policymakers would assess which element is in worse shape and focus on it. The Fed policymakers have debated whether President Trump's tariffs will ignite persistent inflation or will instead represent a one-time shift in the price level.
The anticipated rate cut comes as the Fed's anticipated first interest rate cut of the year amid an intense pressure campaign by the Trump administration to lower rates. The US job growth through March has been revised lower by 911,000, and the Federal Reserve is expected to announce a 25-basis-point interest rate cut on Wednesday.
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