Uncertainty looms over key participants and policy path
This week’s Federal Reserve meeting is shaping up to be one of the most unusual in recent years, with uncertainty not only about the interest rate decision but also about who will be at the table. Pending legal rulings on Governor Lisa Cook and nominee Stephen Miran may affect the vote count, while political pressure from President Donald Trump continues to escalate.
Amid these tensions, the U.S. economy presents a mixed picture. Hiring has slowed dramatically while inflation remains stubbornly high. The central question for policymakers is whether to prioritize stabilizing prices or supporting a weakening labor market. The Fed’s dual mandate — full employment and price stability — has rarely been this difficult to balance.
Rate cut expected despite inflation risks
Most analysts expect the Fed to cut its benchmark interest rate by a quarter point, bringing it to around 4.1%. Fed Chair Jerome Powell and his colleagues have signaled concern about the job market, but sticky inflation may limit the pace and number of future cuts. New economic projections, also due Wednesday, are likely to reflect expectations of one or two more cuts this year and several more in 2026.
This policy moment stands in contrast to recent years. In 2020, the Fed slashed rates rapidly due to the pandemic. In 2021 and 2022, it raised rates aggressively to curb inflation. Now, with mixed signals and political distractions, decisions are harder. Economists warn of possible dissent on both sides — some calling for a deeper cut, others opposing any reduction at all.
Political pressure adds to volatility
President Trump has intensified his pressure campaign, attacking Powell personally and pushing to remove Cook. While Fed officials insist politics won’t affect their decisions, analysts worry that the rhetoric could erode public trust in the central bank. If Cook is removed or Miran isn’t approved in time, just 11 of the usual 12 members would vote.
This could lead to an unprecedented split. Miran and Governor Michelle Bowman may push for a steeper half-point cut, while regional presidents like Beth Hammack (Cleveland) and Jeffrey Schmid (Kansas City) might resist any easing, citing persistent inflation above the Fed’s 2% target. This level of division hasn’t been seen since 2019.
Economic data complicates the outlook
The labor market is flashing warning signs. Employers shed 13,000 jobs in June and added just 22,000 in August. A revision from the Labor Department also showed lower-than-expected job creation through March. Meanwhile, core inflation in August rose 3.1% year over year, continuing to exceed the Fed’s target.
This rare mix of weak job growth and high inflation is a policymaker’s worst-case scenario. Some cuts may be warranted, but aggressive easing could reignite inflation. The Fed must now navigate not only economic challenges but also political threats and internal division as it determines its next move.
