It’s a new era for the Federal Reserve. And not everyone is jazzed about it.
The world’s most important central bank is set to cut interest rates today — probably by 25 basis points. That’s the boring part, though much of Washington and Wall Street will be thrilled.
It’s everything else swirling around the Federal Reserve in this politically charged moment that’s the problem. This may be the most important Fed Day in years.
President Donald Trump has been waging an unprecedented and broad-ranging campaign for control of the Fed all year long. This particular meeting of the Federal Open Market Committee comes at a critical crossroads in that conflict.
Dual mandate. Stephen Miran now holds two of the most important jobs in federal economics. Miran leads the White House’s Council of Economic Advisers as chair, and, as of roughly 10 a.m. Tuesday, he’s also a governor on the Federal Reserve Board.
Miran said he’d take a leave of absence from the White House gig rather than resign, meaning he’s still an employee of the Trump administration. His dual role at the Fed is unheard of in modern U.S. history, and it comes with the blessing of the Republican Senate.
Fed watchers on and off Capitol Hill are increasingly worried about the Fed’s ability to stay independent of Trump’s control.
Sen. Elizabeth Warren (D-Mass.) told us that the Fed’s independence from the White House “is dissolving by the moment.”
“Donald Trump has attacked the independence of the Fed repeatedly, and he’s now making inroads,” Warren said.
Of course, the Trump administration’s closest allies on Capitol Hill are more than happy with the White House’s moves.
“I think we’re taking the politics out of the Fed,” asserted Sen. Bernie Moreno (R-Ohio) “Jerome Powell has infected the Fed with all kinds of incompetence and with an amazing amount of political thinking.” Conservatives have long griped about the Fed’s focus on climate risk during the Biden years, for instance.
At the same time, Federal Reserve Gov. Lisa Cook has so far survived the White House’s attempts to fire her. On Monday, a U.S. appeals court blocked the Trump administration’s attempt to oust Cook over increasingly dubious-looking charges of mortgage fraud. The White House has pledged to bring the case before the conservative-dominated Supreme Court.
In the meantime, Cook has shared a seat at the FOMC table with Miran – a member of an administration that tried to get her fired.
It’s the economy. A rate cut is practically a given coming out of today’s meeting. It’ll be the first we’ve seen since Trump’s return to office, despite his months of lobbying for it.
But Washington policymakers have broader fears about the state of the economy. The U.S. labor market – a high point of the Biden administration – looks increasingly shaky. Inflation has ticked back upwards in recent months, and tariff-exposed sectors are leading that charge.
Will rate cuts fix all that? Not in the near term. Changes in monetary policy always take time to filter through the broader American economy, whether that’s mortgages or credit card balances.
However, it’s the combination of higher inflation and weaker jobs numbers that freak out economists more than anything. The phenomenon has a name: stagflation.
Of course, the inflation consumers are experiencing now could be temporary. That’s the nature of tariffs and a shorter-term trade war.
Yet the Fed only has one blunt tool when it comes to countering inflation. More restrictive monetary policy is supposed to clamp down on demand and ease price pressures. When the Fed cuts rates, the supply of credit eases, and it becomes easier for businesses to grow and create jobs.
So U.S. central bankers find themselves in the unenviable position of choosing whether it’s more important to preserve the labor market or price stability. Today’s likely cut signals that the Fed is more worried about jobs in the near-term.
“If we do have new inflation, clearly, the labor market is the cure,” Sen. John Kennedy (R-La.) said. “Once it starts getting soft, you’ve got to jump on it.”
As always, the most important part of today’s proceedings will be Fed Chair Jay Powell’s news conference at 2:30 p.m. Investors always pore over Powell’s remarks for signs of how the Fed is thinking about the next interest rate meeting.
But we expect some of the Fed press corps’ questions to focus on Miran, Trump and other things that make Powell’s job harder. Plenty of Republicans told us this week they believe the Fed’s independence remains intact. But Democrats are far from convinced.
“What I worry about, with all the threats and tweets from President Trump, is that people’s independent judgment will be interfered with,” said Sen. Chris Van Hollen (D-Md.). “We’re already experiencing the Trump slump. The last thing we need is for a political decision to do even greater harm to the economy.”
