The Federal Reserve is poised to announce a reduction in interest rates as recent reports indicate a deterioration in the labor market. Ahead of a pivotal meeting on rate policy, the U.S. appeals court ruled that Federal Reserve Governor Lisa Cook may continue in her position despite challenges from the Trump administration seeking her removal.
Market experts and investors widely anticipate that the Federal Reserve will implement its first interest rate cut of the year on September 17. This potential move could pave the way for additional rate cuts, aimed at reducing borrowing costs for both businesses and consumers. Economists surveyed by Bloomberg suggest that a quarter-percentage point reduction is likely with expectations of one or two more cuts in 2025.
This decision coincides with increasing pressure from President Donald Trump, who has been vocal about his desire for the central bank to take more aggressive action regarding interest rates. Trump’s administration has taken steps to influence the Federal Reserve’s composition, raising concerns about its independence from political interference. In a notable effort, Trump moved to remove Cook, who is the first Black woman to serve on the board, citing accusations of mortgage fraud related to her property claims. Cook has denied any wrongdoing and has not faced criminal charges.
On September 15, an appeals court ruled in favor of Cook, allowing her to maintain her role while legal matters regarding her removal unfold. Trump’s administration has accused her of falsely designating two residences as her primary home, justifying their attempts to dismiss her. In contrast, Cook has claimed that one of her properties is used as a vacation home, disputing the allegations made against her.
The Senate also confirmed Stephen Miran as a new member of the Fed’s board just a day before the critical rate decision meeting. He will fill the position left vacant by former Governor Adriana Kugler, who resigned in August. With both Miran and Cook set to participate in voting at the upcoming meeting, there are heightened concerns about political influence within the central bank. Miran has pledged to uphold the Fed’s independence, referring to himself as “very independently minded,” despite Trump’s calls for rapid rate reductions.
BMO Capital Markets deputy chief economist Michael Gregory predicts that Miran may advocate for a larger cut than the anticipated quarter-point reduction, which would likely lead to at least one dissenting vote favoring a more substantial decrease.
The benchmark federal funds rate has remained stable at 4.25% to 4.5% since the Fed last made a quarter-point cut in December. The Fed’s mandate is to adjust interest rates in support of stable prices and maximum employment, balancing the dual objectives of addressing high inflation while promoting economic growth and job creation through lower borrowing costs when the labor market weakens. The Fed is expected to disclose its decision at 2 p.m. Eastern Time, followed by a news conference to provide further insights into this important monetary policy shift.
