Fed's 2025 Rate Plan Shaped by Trump Pressure and Miran Dissent

The Federal Reserve's recent decision to lower the federal funds rate by 25 basis points in September has intensified expectations of further reductions in 2025. Market pricing, as reflected in the CME FedWatch tool, now assigns an 87.5% probability of a 50-basis-point cut by year-end, with traders fully pricing in a quarter-point reduction at the October and December meetings. This aligns with the Federal Open Market Committee's (FOMC) post-meeting dot plot, which indicates a median projection of two additional cuts by the end of 2025, bringing the total reduction to 75 basis points from the current 4.00%-4.25% rangeFed Cuts Rates and Signals More to Come in 2025^[2]. The FOMC's decision followed a 11-to-1 vote, with Governor Stephen Miran dissenting in favor of a half-point cut. Miran, a Trump appointee, has been a vocal advocate for aggressive rate reductions to stimulate the labor market and housing sectorFed rate decision September 2025 - CNBC^[1].

The Fed's easing trajectory reflects growing concerns over a slowing labor market, where job gains have stagnated, and the unemployment rate rose to 4.3% in August-the highest since October 2021Fed rate decision September 2025 - CNBC^[1]. Chair Jerome Powell emphasized that downside risks to employment have risen, prompting the central bank to adopt a "more neutral" monetary stance. The decision also acknowledges inflation's persistence, with the FOMC noting that prices "have moved up and remain somewhat elevated," though they remain below the 2% target. Analysts, including Goldman Sachs' Simon Dangoor, argue that the FOMC's dovish shift reflects a majority of policymakers now prioritizing employment risks over inflationary pressuresFed rate decision September 2025 - CNBC^[1].

Political dynamics have further complicated the Fed's mandate. President Donald Trump has consistently pressured the central bank to cut rates aggressively, framing it as essential for boosting the housing market and reducing government debt costs. Miran's dissent and his advocacy for a 1.25-point reduction by year-end underscore this influence, though Powell reiterated the Fed's commitment to independence. The political tension intensified after Trump's attempt to remove Governor Lisa Cook, a Biden appointee, was blocked by a court. Cook, who voted for the recent cut, has denied allegations of mortgage fraud linked to federally backed loansFed rate decision September 2025 - CNBC^[1].

Global central banks are also adjusting to the Fed's easing path. Bloomberg Economics forecasts that 15 of 23 major central banks will reduce rates in 2025, with the U.S. leading the trend. The European Central Bank, however, is expected to pause rate cuts, prioritizing inflation control over growth support. Meanwhile, the Bank of Canada and Reserve Bank of India are set to follow the Fed's lead, with the former citing trade-related economic damage from U.S. tariffs.

Looking ahead, the FOMC's next meeting on October 28-29 will be pivotal. The dot plot projects a terminal rate of 3.50%-3.75% by year-end, with further reductions to 3.25%-3.50% by late 2026. However, Morningstar analysts expect a more aggressive path, forecasting a 3.00%-3.25% range by 2026. The Fed's projections also assume core inflation will ease to 2.6% by 2026, though external risks-including Trump's tariff policies-remain significant uncertaintiesFed Cuts Rates and Signals More to Come in 2025^[2].