Fed expected to deliver first 2025 rate cut amid political turmoil

The US Federal Reserve is widely expected to lower interest rates this week for the first time this year, as a cooling labor market heightens pressure to ease monetary policy. But the move comes under an unusual cloud of political tension.

The central bank has held its benchmark rate steady at 4.25–4.50 percent since December, weighing the impact of President Donald Trump’s sweeping tariffs on inflation. Markets now anticipate a 25-basis-point cut at the conclusion of the Fed’s two-day meeting on Wednesday.

“Everyone knows what the Fed is likely to do,” said Josh Lipsky, chair of international economics at the Atlantic Council. “Yet this meeting carries high drama because of the politics surrounding it.”

Trump has long pressed the Fed to reduce borrowing costs, while also clashing with its leadership. He recently dropped threats to fire Fed Chair Jerome Powell but attempted to dismiss Governor Lisa Cook in August over fraud allegations. Cook, the first Black woman on the board, has challenged her removal in court and remains in office for now.

Another governor, Adriana Kugler, resigned last month, creating a vacancy Trump quickly moved to fill with his economic adviser Stephen Miran. His nomination has drawn criticism for planning only a temporary leave of absence from the administration. If confirmed by the Republican-led Senate, Miran could take part in the Fed’s next policy meeting.

Analysts say markets will be watching closely for guidance on the pace and scale of future cuts. “This will mark the start of an easing cycle the Fed won’t want to fully commit to,” said KPMG chief economist Diane Swonk.

Inflation remains a complicating factor. Consumer price data released last week showed annual inflation rising to 2.9 percent in August, its fastest pace this year. Wells Fargo economists noted that “the inflation genie has not quite been put back in the bottle,” even as job growth stagnates and unemployment ticks higher.

The shifting composition of the Fed has also raised concerns about its independence. “Markets are underestimating the risks to the central bank’s autonomy,” Lipsky warned. “If political influence grows, monetary policy could look very different in the years ahead.”