WASHINGTON, Sept 17 - The upcoming U.S. Federal Reserve meeting is shaping up to be one of the most politically charged gatherings in recent years, concluding on Wednesday. There are broad expectations for a quarter-percentage-point interest rate cut, which may provoke dissent among some policymakers. Some believe this cut is insufficient and overdue, while others argue it may not be warranted at all. Equally important will be the updated projections that reveal where policymakers foresee the economy and monetary policy heading, especially as President Donald Trump continues to influence U.S. economic policy.
As Trump exerts unrelenting pressure on the Federal Reserve to reduce borrowing costs, the meeting comes at a crucial juncture. It will also mark a significant moment as the president's influence on the central bank becomes clearer. Governor Stephen Miran, who has been on leave as the chair of Trump's Council of Economic Advisers, was sworn in as a member of the Fed's seven-member board just as the meeting began. Additionally, the administration announced plans to petition the U.S. Supreme Court to expedite efforts to fire Governor Lisa Cook.
Trump has openly pressured Fed Chair Jerome Powell to resign in pursuit of lower rates. Last month, he shifted his focus to Cook, alleging misconduct related to a mortgage application, which she has denied. Cook's legal battle to retain her position is ongoing, with courts indicating she is likely to prevail while the case is litigated.
As the Fed navigates these politically charged waters, policymakers will analyze the latest economic data and adjust their views on Trump’s impact on the economy. They are expected to release a new policy statement and economic projections at 2 p.m. EDT (1800 GMT), followed by a press conference with Powell at 2:30 p.m. EDT.
The prevailing expectation is for a quarter-point cut, a sentiment that has been building for weeks following softer job market readings over the summer. The July meeting, which already saw dissent from Trump-appointed governors Christopher Waller and Michelle Bowman, may witness even more disagreement this time around. Analysts predict Miran may dissent in favor of a larger cut, potentially joined by Waller and Bowman. However, Kansas City Fed President Jeffrey Schmid has maintained a hawkish stance leading up to the meeting.
Alongside the rate decision, the Fed will release projections that include estimates extending to the end of 2028, effectively covering Trump's entire term. While officials typically outline trend rates for forecasts that far into the future, the immediate outlook for this year and next will reflect how recent economic data has reshaped their views on inflation, unemployment, and interest rates since their last projections in June.
In June, the Fed expressed concern about rising inflation due to Trump's import taxes, but data since then indicates slower employment growth than previously expected. In an August address at the Fed's research conference in Wyoming, Powell suggested that the impact of Trump's new import tariffs might be temporary. He mentioned that the shifting balance of risks could justify a rate cut.
Despite these concerns, the economy continues to grow. Investors anticipate that the Fed will implement rate cuts of a quarter percentage point during its meetings in September, October, and December, with a slower pace of reductions anticipated for the following year. The current rate has been maintained in a range of 4.25%-4.50% since December, following a full percentage point cut over three meetings at the end of 2024.
To support three anticipated cuts, policymakers will need to highlight the downside risks to the labor market, especially as inflation may rise through the remainder of the year. According to Ryan Sweet, Chief U.S. Economist at Oxford Economics, inflation remains a significant challenge for the Fed, with indications that the effects of tariffs could intensify this fall. In their June projections, the median policymaker estimated that the Fed's preferred measure of inflation, the Personal Consumption Expenditures price index, would reach 3% in the fourth quarter, far exceeding the central bank's 2% target.
