Fed Splits Over Rate Cuts as Trump Ally Pushes for Bigger Move

The Federal Reserve announced a 25-basis-point reduction in its benchmark interest rate on September 17, 2025, marking the first cut since December 2024. The federal funds rate now ranges between 4.00% and 4.25%, with officials signaling two additional cuts expected by year-end, though only one is projected for 2026. The decision reflects growing concerns over a slowing labor market and persistent inflation, which remains above the Fed’s 2% target. Fed Chair Jerome Powell emphasized that the move was driven by a “moderation constraint” in economic conditions, balancing the risks of higher inflation against the fragility of employment growth.

The rate cut followed a labor market that added only 22,000 jobs in August, pushing the unemployment rate to 4.3%, the highest since October 2021. Powell highlighted the risks of “low firing and low hiring” dynamics, particularly for marginalized groups like recent graduates, and warned that layoffs could exacerbate unemployment. Despite inflation easing slightly to 2.9% in August, core inflation remains at 3.1%, above the central bank’s target. Officials forecast core PCE inflation to stabilize at 3% in 2025 before declining to 2.6% in 2026.

Powell’s remarks underscored the Fed’s dual mandate challenge: curbing inflation while supporting employment. The central bank now views the pass-through of Trump-era tariffs as “smaller and slower” than previously expected, though inflation risks remain elevated. The Fed’s Summary of Economic Projections (SEP) indicated a median unemployment rate of 4.5% by year-end, rising to 4.4% in 2026 and 4.3% in 2027. However, the projections revealed a deep split within the FOMC, with nine of 19 members anticipating no further cuts in 2025.

Stephen Miran, the newly appointed Fed Governor and a Trump ally, dissented, advocating for a 50-basis-point cut. His vote highlighted political pressures on the Fed, as President Trump has criticized the central bank for delayed rate reductions and sought to remove Governor Lisa Cook from her post. Miran’s appointment has raised questions about the Fed’s independence, though Powell reaffirmed the committee’s commitment to data-driven policymaking. The Fed’s next meetings in October and December will determine whether additional cuts materialize, with markets pricing in a 94% chance of a 25-basis-point reduction in October.

The decision sparked mixed market reactions. U.S. Treasury yields declined for short-term maturities but rose for longer-term bonds, while equities saw volatility. Analysts noted that the Fed’s pivot could support asset markets but cautioned that the path of monetary policy remains uncertain. Goldman Sachs’ Simon Dangoor observed that the FOMC’s “doves are now in the driver’s seat,” though a significant inflation surprise or labor market rebound could alter the trajectory. The rate cut also intensified scrutiny of the Fed’s political independence, with Trump’s recent legal battles over Cook’s removal adding to the debate.

[1] Fed lowers interest rates by 0.25 percentage points in first cut … (https://www.cbsnews.com/news/federal-reserve-fomc-meeting-today-rate-cut-september-2025-powell-impact/)

[2] Fed rate decision September 2025 - CNBC (https://www.cnbc.com/2025/09/17/fed-rate-decision-september-2025.html?msockid=3323dad0a0e36d191edbcca1a1066c85)

[3] Fed Cuts Rates for First Time This Year - The New York … (https://www.nytimes.com/2025/09/17/business/economy/fed-rate-cut-powell.html)

[4] US Fed FOMC Meeting LIVE: 'Labour demand has softened,' Powell … (https://www.financialexpress.com/business/investing-abroad-us-fed-fomc-meeting-september-2025-live-updates-check-us-fed-rate-cut-interest-rate-cut-announcement-latest-news-3980914/)

[5] Fed announces quarter-point interest rate cut. What it … (https://www.usatoday.com/story/money/2025/09/17/federal-reserve-september-rate-cut-live-updates/86178612007/)