Fed expected to cut rates, update views of Trump economic plan with new projections

Federal Reserve Board Chairman Jerome Powell listens during a hearing of the House Committee on Financial Services on Capitol Hill, Tuesday, June 24, 2025, in Washington. (AP Photo/Mark Schiefelbein)

WASHINGTON — The most politically charged U.S. Federal Reserve meeting in years wraps up on Wednesday with broad expectations for a quarter-percentage-point interest rate cut that may spark dissents from some policymakers who feel it is too small and too late and others who feel it is not warranted at all.

Just as critical as that decision will be an updated slate of projections showing where policymakers see the economy and monetary policy heading eight months into U.S. President Donald Trump’s extensive rewrite of U.S. economic policy and unrelenting pressure on the central bank to lower borrowing costs.

One all-but-certain critic of the outcome will be Trump himself, who wants rates slashed by far more than would typically be warranted in a still-healthy economy. It will also come as the president’s imprint on the central bank begins to take shape.

Governor Stephen Miran, on leave as the chair of Trump’s Council of Economic Advisers, was sworn in as a member of the Fed’s seven-member board on Tuesday as the meeting was set to convene, while the administration also said it would ask the U.S. Supreme Court to allow its effort to fire Governor Lisa Cook to proceed.

Trump has tried to pressure Fed Chair Jerome Powell to resign in a bid to win lower rates, then last month turned his focus to Cook and said he was firing her over allegations she misrepresented information on a mortgage application.

Cook sued to keep her job, and so far courts have said she is likely to prevail and can keep her position while the matter is litigated. She has denied any wrongdoing and has not been charged with any offense.

With that backdrop and concerns the Fed was being inevitably drawn from its comparatively insulated world into Washington’s polarized climate, policymakers will sort through the latest economic data, update their views about Trump’s impact on the economy, and release a new policy statement and economic projections at 2 p.m. EDT (1800 GMT). Powell is scheduled to hold a press conference at 2:30 p.m. EDT.

‘Shifting Balance of Risks’

A quarter-point cut has been the prevailing expectation for weeks after readings of the job market turned decidedly soft as the summer progressed.

But after a July meeting that already produced two dissents from Trump-appointed governors Christopher Waller and Michelle Bowman, both advocating for a rate cut then, this week’s meeting could see even more disagreement.

Most analysts expect a dissent right out of the gate from Miran in favor of a larger cut, perhaps joined by Waller and Bowman, while at least one of the voting Reserve Bank presidents - Kansas City Fed President Jeffrey Schmid - had not retreated from his hawkish posture as the meeting approached.

Meanwhile, the projections released alongside the rate decision will be the first to include estimates as far out as the end of 2028, effectively spanning Trump’s full term.

While officials tend to pencil in trend rates of growth and other variables for projections that far into the future, the outlook for this year and next will show how recent data has reshaped policymakers’ views about inflation, unemployment, and the path of interest rates since their prior projections in June.

The June projections showed concern about rising inflation stemming from the Trump administration’s taxes on imports, but data since then has shown slower employment growth than previously estimated. Powell in an August speech at the Fed’s research conference in Wyoming said it was a “reasonable base case” that Trump’s new import taxes will have only a temporary impact on inflation, and that “the shifting balance of risks may warrant adjusting our policy stance” with a rate cut.

Data since then has tended to reaffirm the risks to the job market, though the economy continues to grow.

Investors anticipate the Fed will reduce rates by a quarter of a percentage point at its September, October and December meetings, with a slower pace of reductions next year.

Officials have maintained the rate in a range of 4.25 to 4.50 per cent since December after cutting it a full percentage point over three meetings at the end of 2024.

To justify three cuts though, policymakers “will have to lean into the downside risk to the labor market,” at a time when inflation may still be set to accelerate for the rest of the year, said Oxford Economics Chief U.S. Economist Ryan Sweet.

“Inflation remains a thorn in the Fed’s side and there are signs that the pass-through from tariffs will intensify this fall,” Sweet said.

In their last set of projections in June, the median policymaker projected the Fed’s preferred measure of inflation, the Personal Consumption Expenditures price index, would be three per cent in the fourth quarter of the year, significantly higher than the central bank’s two per cent target.

(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)