Federal Reserve Set to Cut Interest Rates Amid Trump Pressure and Labour Market Concerns

After months of heated economic debate and repeated attacks from US President Donald Trump, the Federal Reserve is preparing to announce its first interest rate cut since December. The central bank is expected on Wednesday to reduce its benchmark lending rate by 0.25 percentage points, bringing it into a range of 4% to 4.25% — the lowest it has been since late 2022.

The decision is anticipated to mark the beginning of a cycle of further reductions over the coming months, designed to ease borrowing costs across the United States. However, the move also signals that policymakers at the Fed are growing more concerned about the economy’s trajectory, particularly as signs of a faltering job market become more apparent.

Despite that, the modest cut is unlikely to satisfy Trump, who has been demanding much steeper reductions. Although the Fed operates independently from the White House, its decision to lower rates is hardly surprising. Inflation, which surged in the wake of the pandemic and drove the Fed to tighten monetary policy aggressively in 2022, has now eased significantly.

Central banks in the UK, Europe, and Canada have already responded with rate cuts, while Fed officials themselves have been hinting for months that borrowing costs would likely fall by at least half a percentage point this year. At the Fed’s most recent meeting, two board members even voted for an immediate cut. They were overruled, however, by colleagues still uneasy that Trump’s economic agenda — including tax reductions, tariffs, and the detention of migrant workers — could stoke inflation once again.

Indeed, inflation has picked up somewhat in recent months. Prices climbed 2.9% in the year to August, the sharpest increase since January and still above the Fed’s 2% target. But those worries have been overshadowed by weakness in the labour market. Recent data showed lacklustre job growth in July and August and, more alarmingly, an outright job loss in June — the first monthly decline since 2020.

“It really comes down to what we’ve seen in the jobs market – the deterioration that we’ve seen over the past few months,” explained Sarah House, senior economist at Wells Fargo, which anticipates rates falling by 0.75 percentage points by year-end. “The Fed knows that when the labour market turns, it turns very quickly, so they’re wanting to make sure they’re not stepping on the brakes of the economy at the same time the labour market has already slowed.”

Although Trump has dismissed fears of economic fragility, he has been relentless in criticising the Fed’s reluctance to act. For months he has argued that rates should be cut to as low as 1%. On social media, he has derided Fed chairman Jerome Powell as “a real dummy,” accusing him of weakening the economy by maintaining borrowing costs at elevated levels.

“Too Late” MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!” Trump declared in a post this week, taking aim directly at Powell.

His pressure campaign has gone beyond words. Last month, Trump swiftly appointed Stephen Miran, his Council of Economic Advisers chairman, to the Fed to fill a sudden vacancy, ensuring his ally would be present at this week’s policy meeting. His administration has also threatened Powell with dismissal and investigation and is engaged in a legal battle seeking the removal of board member Lisa Cook.

Such manoeuvres have drawn criticism, with detractors warning that Trump’s actions amount to an unprecedented attack on the Fed’s independence. Yet analysts maintain that the looming rate cut would have taken place irrespective of his interventions.

“The president’s policies are certainly causing the economic activity that is forcing the hand of the Fed,” said Art Hogan, chief market strategist at B. Riley Wealth. “The president’s jawboning of the Fed to lower rates I think has had zero impact whatsoever.”

By fLEXI tEAM