The Federal Reserve's interest rate-setting committee is scheduled to release its decision about whether to lower interest rates this afternoon, and while the market consensus holds that the central bank will lower rates, the question is how large the cut will be.
The CME Fedwatch tool — which examines interest rate futures markets to determine investors' expectations about the Fed's interest rate moves — shows that 94% of investors have priced in a 25 basis point rate cut, while 6% have priced in a more aggressive 50 basis point rate cut. The Fed's current interest rate target is between 4.25% and 4.5%.
The FOMC's September meeting is also notable because it is the first to be attended by Fed Gov. Stephen Miran, who was confirmed by the Senate late Monday and sworn in just ahead of the meeting on Tuesday morning. Miran, who had been serving as the chair of the White House Council of Economic Advisers and had taken a leave of absence from that position while serving on the Fed, was a chief proponent of the president's tariff policies and is seen as a likely advocate for a more aggressive rate cut.
Fed Gov. Lisa Cook is also in attendance at the meeting after a federal appeals court denied a last-minute motion by the Justice Department to block a lower court injunction allowing her to remain at her post as her lawsuit challenging her removal by the president last month goes forward.
Federal Housing Finance Agency Director Bill Pulte posted a screenshot of a criminal referral against Cook to the Justice Department last month alleging that she had claimed primary residence on two mortgages in 2021, prior to her joining the board. Trump posted a screenshot of a letter to Cook in late August saying that she was thereby removed from the Fed board, and Cook sued the president on the grounds that the removal is not legal and the manner of her removal violates her due process rights. A lower court granted Cook's motion for an injunction allowing her to remain at her post, and an appeals court upheld that ruling late Monday night. The White House said it is appealing the ruling to the Supreme Court.
The Federal Reserve has been holding interest rates steady since January amid competing concerns about the relative risks of rising inflation and rising unemployment. The Fed's monetary policy mandate is to maintain price stability — that is, to keep inflation low — and maximize employment, which implies keeping interest rates from going too high. The president's policies on international trade and immigration have presented the Fed with a difficult challenge, because those policies could create both inflationary pressure and reduce economic growth, potentially putting the Fed's mandates at cross-purposes.
"The committee had been on a plan to cut the nominal rates given lower inflation, but the set of administration policies made it more complicated — and not just the possibility that tariffs raise consumer prices," said Vincent Reinhart, chief economist of investments at BNY, during a media availability last week. "Tighter border control puts more pressure on wage costs. Deregulation may make firms more enthusiastic about spending on things that could affect the outcome for inflation."
More recent economic data appears to have clarified the issue for FOMC members. The most recent employment figures released by the Bureau of Labor Statistics showed the economy added only 22,000 jobs in August, which came after the bureau reported just 73,000 jobs were added in July and revised down prior months' estimates by 258,000 jobs, indicating that the labor market is weakening more severely than experts had assumed. The BLS' most recent consumer inflation estimates showed that inflation grew at 0.4% in August, a higher but more manageable increase.
Federal Reserve Chair Jerome Powell said at the Federal Reserve Bank of Kansas City's annual economic symposium in Jackson Hole, Wyo., last month that the Fed's already-restrictive monetary policy combined with "the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance" at the September FOMC meeting. Fed Gov. Christopher Waller, who was appointed by President Trump in his first term, urged his fellow FOMC members to "get on with" lowering interest rates in September.
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11m ago
Powell dismisses 'third mandate' on moderate long-term rates
Powell brushed aside an idea floated by recently-confirmed Federal Reserve Gov. Miran that the Fed should consider moderate long-term interest rates as a "third mandate" of the central bank's monetary policy.
During his confirmation hearing, Miran said that he considers moderate long-term interest rates as an additional item that the central bank should be mindful of when making its monetary decisions.
However, Powell noted the Fed hasn't entertained the idea of treating long-term price stability as a policy-setting priority in itself, saying that achieving the existing dual mandate tends to result in moderate long-term interest rates.
"We always think of it as the dual mandate — maximum employment and price stability — for a long time, because we think moderate long-term interest rates are something that will result from low and stable inflation and maximum employment," Powell said. "We haven't thought of that for a very long time as a third mandate [because] that requires independent action, so that's where that is."
"As far as I'm concerned there's no thought of considering that we somehow incorporate that in a different way," Powell added.
38m ago
Powell: No "widespread support at all" for 50bps cut
Federal Reserve Chair Jerome Powell said that during committee deliberations there was almost no support for a 50 basis point reduction to short term interest rates.
"There wasn't widespread support at all for a 50bps cut today, " Powell said. "We've done very large rate hikes and very large rate cuts in the last five years, and you tend to do those at a time when you feel that policy is out of place and needs to move quickly. That's not at all what I feel, certainly now."
Newly confirmed Federal Reserve Gov. Stephen Miran was the only member one who cast a dissenting vote, citing a preference for a 50 basis point cut. Stakeholders have previously noted they are keeping an eye out for members who vote for higher cuts, positing that they might be vying to be the next Fed chair after Powell's term as chair expires in May 2026.
A lack of enthusiasm around cutting rates even further stemmed from continued concern that tariffs and immigration policies could drive up inflation.
Federal Reserve Chair Jerome Powell didn't say much when asked about whether Fed Gov. Stephen Miran's presence on the committee brings the central bank's independence into question.
"We did welcome a new committee member today, as we always do," Powell said. "We remain committed to our dual mandate goals. We're strongly committed to maintaining our independence, and beyond that I don't have anything to share."
Powell has long resisted questions from the press related to the White House or its efforts to wield more control over the Fed, so his limited response comes as no surprise. But Miran — who is taking a leave of absence from his prior position as chair of the White House Council of Economic Advisers, is the first Fed member with such explicit ties to an administration in decades. Other former CEA chairs have served on the Fed board, but have typically resigned from those positions rather than retaining them.
Markets met the news of the Federal Reserve's 25 basis point interest rate cut with a quick rally, followed by an equally quick retreat.
The Dow Jones Industrial Average jumped 200 points on the news when it was announced at 2pm, but within 15 minutes had fallen by about 130 points. The Nasdaq Composite — which had been down all day — jumped about 75 points before retreating back to where it was. The KBW Bank index, however, rose by roughly 0.75% on the news and has largely retained those gains.
The Federal Open Market Committee's 25 basis point rate cut was broadly in line with market expectations, though investors may have anticipated more appetite on the committee for a larger 50 basis point cut at the September meeting. Only Stephen Miran, who was sworn in as a Fed governor Tuesday morning, dissented from the majority, favoring a 50bps cut.
The FOMC's summary of economic projections showed nine members of the committee's full membership — including voting and non-voting members of the committee — expect interest rates to reach between 3.5% and 3.75% by the end of the year, suggesting two 25 basis points cut in 2025. But another six members of the committee anticipate rates remaining at between 4% and 4.25 through 2025, while two members expect a single additional 25bps cut this year. One member expected interest rates to rise again to between 4.25 and 4.5%, while another single member expected interest rates to fall to 3% by year-end.
The Federal Open Market Committee voted 11-1 to cut interest rates by 25 basis points Wednesday, with recently-confirmed Federal Reserve Gov. Stephen Miran casting the lone dissent. Miran preferred a 50 basis point cut.
The committee's decision to lower the target range for the policy rate to between 4% and 4.25% was widely anticipated by market watchers leading up to the meeting, which began Tuesday and concluded this afternoon. Miran's dissent marks his first FOMC meeting since being confirmed by the Senate on Monday night and sworn in yesterday morning. Miran is on a leave of absence from the White House Council of Economic Advisers, which he chaired up until his confirmation.
Federal reserve chair Jerome Powell and other committee members, including Fed Vice Chair for Supervision Michelle Bowman and Fed Gov. Christopher Waller — both Trump appointees — have recently pressed the central bank to cut rates out of concern over a weakening labor market.
In its policy statement, the committee said it will continue to monitor how monetary policy impacts both the labor market and inflation. It stated it is prepared to adjust its monetary stance "as appropriate if risks emerge."
The overwhelming market consensus is that the Fed will lower interest rates by 25 basis points Wednesday, but Fed watchers are also looking for clues about whether there is an appetite among certain committee members for larger cuts and how aggressive they will be in obtaining them.
During the July FOMC meeting, Fed Govs. Christopher Waller and Michelle Bowman dissented from the majority decision to keep interest rates steady, urging a 25 basis point cut instead. With the addition of Stephen Miran to the Fed board, Bowman and Waller are likely to have another advocate for lower rates, but it remains unclear whether there are enough members on the committee of a similar mind to support larger cuts at the September meeting or going forward.
The dynamics on the Fed board are such that Powell will have to mediate a position between those seeking a more aggressive rate cut and those who would prefer to keep interest rates steady out of an abundance of caution toward rising inflation.
"I would expect a relatively hawkish cut" in September, said Vincent Reinhart, chief economist of investments at BNY, during a media availability last week. "I think that's how Chair Powell gets his committee to the table. Because, as we know from the last minutes, there are some participants who are restive at the idea of cutting rates, wanting more evidence on inflation. There are some who think they should have cut rates — we've already witnessed the dissent."
Reinhart added that whatever the committee does during today's meeting will be unlikely to impact the trajectory of the committee going forward as the Fed board's composition changes. Notwithstanding the outcome of Cook's legal challenge to remain on the board, Miran's term expires in January — at which time he or another nominee of Trump's choosing would be put forward — and Powell's term as Fed chair expires in May 2026. Traditionally, Fed chairs resign from their membership positions on the Board after their terms as chair expire, but they are not required to resign. Powell demurred when asked if he would remain to serve out his term, which expires in 2028, but did not categorically state that he would resign.
That expectation that the Fed is on a trajectory to looser monetary policy — particularly when the White House is taking unprecedented steps to effectuate lower interest rates — could influence the FOMC, but Reinhart said how those coming changes influence the committee now is anyone's guess.
"There will be changes in [the FOMC's] composition, and administrations appoint people more inclined to their view, and the administration wants to lower rates," Reinhart said. "And so as the chair and governorships roll over, we will get more accommodative policy in 2026 and beyond. An interesting question is, will that influence what the committee does now? I don't know."
