Federal Reserve officials meet on Tuesday and Wednesday in a pivotal meeting under unprecedented circumstances.
It is expected that monetary policymakers, at the conclusion of their two-day meeting on Wednesday, will announce the first interest rate cut since December, in an attempt to support the slowing U.S. labor market, with hopes that the broad tariffs imposed by President Donald Trump will have only a limited impact on inflation.
But there is an “elephant in the room” occupying discussions about the U.S. economy: Trump’s intense effort to reshape the top of the Federal Reserve.
The Senate on Monday confirmed the appointment of Stephen Miran, Trump’s senior economic adviser, to the Fed’s Board of Governors to fill a vacant seat expiring next January, with the possibility of extension. Miran confirmed that he would not commit to resigning at the end of the term if no permanent successor is appointed. After being sworn in on Tuesday morning, he is now able to vote in this week’s monetary policy meeting.
In addition, Lisa Cook, a member of the Board of Governors whom Trump attempted to remove in late August, will also vote. An appeals court rejected on Monday Trump’s attempt to dismiss her, while her lawsuit against the removal decision proceeds. Cook is the first Fed Board member to face an attempted dismissal.
The latest meeting is extraordinary, not only because the central bank is finally changing its strategy on interest rates, but also because of the developments related to its powerful board, amid increasing pressure from the Trump administration on an institution long considered politically independent.
The main reason behind the cut
The basic motives behind cutting borrowing costs for the first time in nine months are increasing signs of labor market weakness, along with a growing conviction among Fed officials that tariff-driven inflation may be temporary.
During the summer, job growth was weak: employers added only about 29,000 jobs on average during the three months ending in August, a rate slightly higher than July, but still the weakest since 2010 except for the pandemic period.
Also, the number of unemployed people seeking work exceeded the number of available jobs, while new jobless claims in the week ending September 6 rose to their highest level in nearly four years. Likewise, the number of people unemployed for more than 26 weeks in August reached its highest since November 2021.
A preliminary revision of employment data for the year ending in March, published last week, showed that the U.S. labor market was weaker than believed before entering the summer.
Fed Chair Jerome Powell paved the way for this cut during a notable speech in late August when he said that “downside risks to employment are increasing.” Other officials echoed these concerns, the most prominent among them initially being Governors Christopher Waller and Michelle Bowman, both Trump appointees, who supported a rate cut in July.
The Fed’s new economic projections, due on Wednesday, are set to reveal how fast and deep interest rate cuts will be in the coming months amid the fragility of the labor market.
The Fed’s position on tariff inflation
Although inflation has risen in recent months — due to Trump’s broad policies, especially tariffs — Fed officials have become more convinced that any increase may be temporary.
The consumer price index rose in August by 2.9% year-on-year, in line with economists’ expectations, according to Labor Department data last week. For months, consumer inflation readings have been consistent with forecasts, despite the confusion caused by tariff implementation.
San Francisco Fed President Mary Daly recently wrote that “price increases associated with tariffs will be one-off.” St. Louis Fed President Alberto Musalem said in a speech this month that he expects “tariff effects to work their way through the economy within two to three quarters, and their impact on inflation to fade thereafter.”
Christopher Waller confirmed in a speech in Miami on August 28 that “inflation has risen since the first quarter, but these figures include the effects of increased tariffs on imports, which I expect will only temporarily raise inflation.” He added: “Most forecasts indicate that annual inflation will continue to rise slowly for a few more months, with the monthly tariff effects fading by early 2026.”
An unprecedented pressure campaign from Trump
While Fed officials try to understand a complex economic puzzle, the Trump administration continues to exert pressure on the central bank, which has traditionally enjoyed political independence.
Since the beginning of his second term, Trump has repeatedly and publicly criticized Powell and the Fed for refusing to cut interest rates this year. Monetary policymakers postponed the rate cut until this week to first see the effects of Trump’s policies.
Trump had threatened earlier this year to dismiss Powell, but backed down after advisers warned him that it could spark sharp volatility in financial markets. In July, the administration used the Fed headquarters renovation project in Washington — with a cost of $2.5 billion — as a pretext to try to remove Powell, accusing him of mismanagement. Trump and Powell engaged in a public dispute over the project’s total cost.
Trump is also now attempting to remove Cook on allegations of mortgage-related misconduct, still under Justice Department investigation. However, the courts have kept Cook in her position while her case against the dismissal continues. Recent documents — reported by the Associated Press — showed that Cook’s apartment in Atlanta, which the administration says is one of two homes she identified as her primary residence, had been declared as a vacation home. Cook denied any wrongdoing.
While Cook’s status remains pending, Miran’s appointment has raised concerns among Democrats because of his closeness to the president. But he confirmed his commitment to ethics laws, stressing that he would express independent views on the economy. He said during his confirmation hearing: “I am very independent-minded, as demonstrated by my willingness to depart from consensus, and I expect to continue doing so if confirmed.”
Trump has expressed his desire for Republicans to form a majority within the Fed’s Board of Governors, and Miran’s confirmation process was accelerated — taking only about a month from nomination to swearing-in, while usually it takes several months — allowing him to participate in the September meeting.
Most observers already expect the Fed to announce a cut of no less than a quarter percentage point at the conclusion of the meeting, whether or not Miran participates.
