Fed Divided on Rate Reductions as Trump Supporter Advocates for Larger Cut

On September 17, 2025, the Federal Reserve implemented a 0.25% decrease in its key interest rate, the first such move since December 2024. The federal funds rate is now set within a 4.00% to 4.25% range. Officials indicated that two more reductions are likely before the end of the year, with only one additional cut anticipated in 2026. This action comes amid mounting worries about a weakening job market and inflation that continues to exceed the Fed’s 2% goal. Fed Chair Jerome Powell stated the decision was influenced by a “moderation constraint” in the economy, aiming to balance the threat of persistent inflation with concerns about slow job growth.

The rate adjustment followed a modest increase of just 22,000 jobs in August, which pushed unemployment up to 4.3%—the highest level since October 2021. Powell pointed out the dangers of both low hiring and low firing rates, particularly for vulnerable groups such as new graduates, and cautioned that further layoffs could worsen unemployment. While inflation eased slightly to 2.9% in August, core inflation remains at 3.1%, still above the central bank’s target. Projections suggest core PCE inflation will hold at 3% in 2025, then fall to 2.6% in 2026.

Powell’s comments highlighted the Fed’s ongoing challenge of controlling inflation while also fostering employment. The central bank now believes the effects of tariffs from the Trump administration are “smaller and slower” than previously thought, though inflationary pressures persist. According to the Fed’s Summary of Economic Projections (SEP), the median unemployment rate is expected to reach 4.5% by the end of the year, then dip to 4.4% in 2026 and 4.3% in 2027. However, the SEP also revealed significant disagreement within the FOMC, with nine out of nineteen members not expecting further cuts in 2025.

Stephen Miran, recently named to the Fed board and known for his ties to Trump, voted against the majority, advocating for a larger 0.5% rate cut. His dissent underscored the political pressures facing the Fed, as President Trump has criticized the central bank for being slow to lower rates and has attempted to remove Governor Lisa Cook. Miran’s appointment has sparked debate about the Fed’s autonomy, though Powell stressed the committee’s reliance on economic data for its decisions. The Fed’s upcoming meetings in October and December will determine if more cuts are forthcoming, with markets currently pricing in a 94% probability of another 0.25% reduction in October.

The announcement led to varied reactions in financial markets. Yields on short-term U.S. Treasuries fell, while those on longer-term bonds increased, and stock markets experienced volatility. Some analysts believe the Fed’s shift could benefit asset prices, but warn that the future direction of monetary policy is still unclear. Simon Dangoor of Goldman Sachs noted that the FOMC’s more dovish members are now leading policy, but a sharp rise in inflation or a strong labor market recovery could change the outlook. The rate cut has also brought renewed attention to the Fed’s political independence, especially as Trump’s efforts to remove Cook continue to fuel debate.