The Fed expects to cut interest rates, but less than Trump wants

1:03 a.m. exterior view of the Marriner S. Eccles Federal Reserve Board building in Washington, D.C., June 14, 2022. Sarah Silbiger/Reuters

The Federal Reserve will set its key interest rate on Wednesday, adjusting the main policy lever for the first time since the government shutdown, sharply limiting the publication of federal data on the gold standard economy.

In a rare exception, the US government released an inflation report last week that showed continued acceleration rising prices, which could complicate the Fed’s efforts to revive a weak labor market.

In recent months, inflation has risen and hiring has slowed, creating the risk of an economic double whammy known as “stagflation.”

Economic conditions have left the Federal Reserve System in limbo. If the Fed raises interest rates as a hedge against tariff-induced inflation, it risks tipping the economy into recession. On the other hand, if the Fed cuts rates to stimulate the economy amid slowing hiring, it risks increasing spending and worsening inflation.

Last month, the Federal Reserve cut its benchmark interest rate by a quarter of a percentage point, opting for the first rate cut of the year, as it tries to revive the labor market. The federal funds rate is between 4% and 4.25%, retaining much of the sharp hike enacted in response to the outbreak of pandemic-era inflation.

President Donald Trump and Federal Reserve Chairman Jerome Powell speak to reporters during a review of the $2.5 billion Federal Reserve Headquarters renovation project, July 24, 2025, in Washington. Chip Somodevilla/Getty Images

Policymakers are expected to make an additional cut of a quarter point on Wednesday, according to the CME FedWatch Tool, a gauge of market sentiment.

“It’s a challenging situation when our goals are in such tension,” Powell said last month, but he added that the balance of risks has shifted toward greater concern because of slow hiring.

The stance provides a policy change long sought by President Donald Trump, although the size of the expected rate cut will remain largely unchanged. certainly fall short of Trump’s desired outcome.

Last month, the Federal Open Market Committee (FOMC), the Fed’s policymaking body, forecast two more quarter-point rate cuts before the end of the year. On the contrary, Trump called for a total rate cut of as much as 3 percentage points.

Trump has waged an unprecedented campaign of pressure on the Fed.

In recent months, Trump has fired one member of the Fed’s board of governors and secured the Senate confirmation of another. Both officials were among 12 policymakers who voted on the interest rate decision last month, though their status remained unclear days before the Fed’s meeting. They are both set to vote again on Wednesday.

Stephen Miran, the White House’s chief economic adviser, who joined the Fed last month, cast the lone vote in favor of a half-point higher rate cut.

Trump sought to fire board member Lisa Cook, who sued Trump over her attempted removal, saying the decision violated her legal protections as an employee of an independent federal agency. Trump said he removed Cook because of the mortgage fraud allegations against her.

Federal law allows the president to fire a Fed board member “for cause,” although no president has attempted such a removal in the central bank’s 112-year history.

Last month, a federal judge issued a preliminary injunction requiring the Fed to allow Cook to continue serving as Federal Reserve governor while her lawsuit works its way through the courts.

Source: abcnews.go.com