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The moment has arrived.
After a protracted period of economic debate and sustained criticism from US President Donald Trump, the Federal Reserve is widely anticipated to reduce interest rates on Wednesday.
The central bank is expected to announce a 0.25 percentage point decrease in its benchmark lending rate, positioning it within a target range of 4% to 4.25% – the lowest level observed since late 2022.
This move, marking the first rate cut since last December, is projected to initiate a series of further reductions in the coming months, with the aim of lowering borrowing costs across the United States.
However, these cuts also reflect underlying concerns about the economy, indicating a growing consensus within the Fed that a sluggish job market necessitates stimulus through lower interest rates.
Furthermore, these actions are unlikely to appease President Trump, who has advocated for significantly more aggressive cuts.
In many respects, the Fed’s decision to cut rates, operating independently of the White House, comes as no surprise.
The inflation surge that followed the post-pandemic economic recovery, which prompted the bank to raise interest rates in 2022, has notably subsided.
Central banks in the UK, Europe, Canada, and other regions have already responded by lowering rates. Fed policymakers themselves have indicated for months that they anticipated reducing borrowing costs by at least half a percentage point this year.
During the Fed’s previous meeting, two board members even supported a rate cut.
However, they were outvoted, as other members maintained concerns that President Trump’s economic policies, including tax cuts, tariffs, and immigration enforcement, could potentially reignite inflation.
Indeed, recent data reveals a slight uptick in US inflation. Prices rose by 2.9% over the 12 months leading up to August, marking the fastest pace since January and remaining above the Fed’s 2% target.
Nonetheless, in recent weeks, concerns about the labor market have taken precedence. The US reported modest job gains in August and July, along with an outright loss in June – the first such decline since 2020.
“It really comes down to what we’ve seen in the jobs market – the deterioration that we’ve seen over the past few months,” said Sarah House, senior economist at Wells Fargo, which is expecting rates to drop by 0.75 percentage points by the end of the year.
“The Fed knows that when the labor market turns, it turns very quickly, so they’re wanting to make sure they’re not stepping on the brakes of the economy at the same time the labor market has already slowed.”
While President Trump has dismissed concerns about economic weakness, the rate cut is unlikely to be entirely unwelcome, as he has repeatedly criticized the Fed’s reluctance to lower rates, advocating for a target as low as 1%.
On social media, he has referred to Federal Reserve Chairman Jerome Powell as “a real dummy,” accusing him of hindering economic growth by maintaining excessively high interest rates for too long.
“Too Late” MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!” Trump wrote in a social media post this week, referring to Powell.
President Trump’s influence extends beyond rhetoric. He swiftly appointed his Council of Economic Advisers chairman, Stephen Moore, to the Fed in time for this week’s meeting after a recent vacancy.
His administration has also reportedly considered dismissing and investigating Powell and is currently engaged in a legal dispute regarding its efforts to remove economist Lisa Cook from the board.
Critics argue that President Trump’s actions represent an unprecedented assault on the Fed’s independence.
Regardless of any tensions surrounding this week’s Fed meeting, analysts suggest that the Fed’s decision to cut rates would have occurred irrespective of President Trump’s campaign.
“The president’s policies are certainly causing the economic activity that is forcing the hand of the Fed,” said Art Hogan, chief market strategist at B. Riley Wealth.
“The president’s jawboning of the Fed to lower rates I think has had zero impact whatsoever.”
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