Fed expected to cut interest rates, but less than Trump wants

(WASHINGTON) — The Federal Reserve on Wednesday will set the level of its benchmark interest rate, adjusting a major policy lever for the first time since a government shutdown sharply restricted the release of gold-standard federal data about the economy.

In a rare exception, the U.S. government issued an inflation report last week showing a continued acceleration of price increases, which may complicate the Fed’s effort to revive a flagging labor market.

In recent months, inflation has picked up while hiring has slowed, posing a risk of an economic double-whammy known as “stagflation.”

The economic conditions have put the Federal Reserve in a bind. If the Fed raises interest rates as a means of protecting against tariff-induced inflation, it risks tipping the economy into a downturn. On the other hand, if the Fed lowers rates to stimulate the economy in the face of a hiring slowdown, it threatens to boost spending and worsen inflation.

Last month, the Fed cut its benchmark interest rate a quarter of a percentage point, opting for its first interest rate cut this year in an effort to revive the labor market. The federal funds rate stands between 4% and 4.25%, preserving much of a sharp increase imposed in response to a pandemic-era bout of inflation.

Policymakers are widely expected to make an additional quarter-point cut on Wednesday, according to CME FedWatch Tool, a measure of market sentiment.

“It’s a challenging situation when our goals are in tension like this,” Powell said last month, but he added that the balance of risks had shifted toward greater concern over sluggish hiring.

The posture delivers a policy shift long-sought by President Donald Trump, though the size of the anticipated rate cut will all but certainly fall short of Trump’s desired outcome.

Last month, the Federal Open Market Committee (FOMC), a policymaking body at the Fed, projected two additional quarter-point rate cuts over the remainder of the year. By contrast, Trump has called for rate cuts totaling as much as 3 percentage points.

Trump has carried out a pressure campaign at the Fed with little precedent.

In recent months, Trump moved to fire one member of the Fed’s board of governors and secure Senate confirmation for another. Both officials were among the 12 policymakers who cast votes on last month’s interest-rate decision, though their status remained uncertain days before the Fed meeting. They both stand poised to cast votes again on Wednesday.

Stephen Miran, a top White House economic advisor who joined the Fed last month, cast the lone vote in favor of a larger half-point rate cut.

Trump attempted to fire board member Lisa Cook, who sued Trump over her attempted ouster, saying the decision violated her legal protections as an employee at the independent federal agency. Trump said he removed Cook over mortgage fraud allegations against her.

Federal law allows the president to remove a member of the Fed board “for cause,” though no president has attempted such a removal in the 112-year history of the central bank.

Last month, a federal judge issued a preliminary injunction requiring the Fed to let Cook continue serving in her role as a governor of the Federal Reserve System as her lawsuit moves through the courts.

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