Fed Expected to Cut Rates and Update Trump Economic Outlook
The most politically charged Federal Reserve meeting in years concludes on Wednesday. Markets broadly expect a quarter-point rate cut. But opinions inside the Fed are divided. Some policymakers argue the cut is too small and too late, while others believe no cut is needed at all.
Equally important will be the Fed’s updated projections. These forecasts will show how policymakers see the economy and monetary policy evolving. The update comes eight months into President Donald Trump’s economic overhaul and amid his continued pressure on the central bank to lower borrowing costs.
Trump is expected to criticize the outcome. He has pushed for deeper cuts, despite the economy remaining relatively stable. His influence on the Fed is also growing. Stephen Miran, a Trump ally and former head of the Council of Economic Advisers, was sworn in as a new Fed governor this week. Meanwhile, the administration is fighting in court to remove Governor Lisa Cook, who has resisted Trump’s policies.
Chair Jerome Powell continues to face pressure. Trump has called for his resignation and targeted other Fed members, fueling concerns that the central bank’s independence is at risk. At 2 p.m. EDT, the Fed will release its new statement and projections. Powell will hold a press conference shortly after.
A Shift in Policy Risks
The expected rate cut comes as the U.S. labor market shows signs of weakness. Job growth has slowed, raising fears about economic momentum. Analysts predict that dissent will come from Trump-appointed governors, including Miran, who may push for a larger cut.
The new projections will also extend through 2028, covering Trump’s full term. While long-term estimates usually reflect trend growth, the near-term data will highlight the Fed’s updated views on inflation, unemployment, and rates.
In June, the Fed had warned about inflationary pressure from Trump’s import tariffs. But since then, employment growth has slowed, shifting the balance of risks. Powell recently said Trump’s tariffs may have only a temporary impact on prices, suggesting that a rate cut is justified.
Investors expect the Fed to reduce rates by a quarter-point at its September, October, and December meetings. Cuts could slow in 2026, but to justify multiple moves, officials may need to emphasize risks to the labor market, even as inflation remains above target.
The central bank’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, is forecast at 3% by year-end. That is still higher than the Fed’s 2% goal, showing the challenges ahead as policymakers balance inflation and employment risks.
