Mon, Sep 15, 2025 page9

• Fed poised for rate cut as political tension mounts

  PERSONNEL CHANGES: Markets would be monitoring division with the potential arrival of a new governor, as the Fed usually votes almost in unison, an expert said

  • AFP, WASHINGTON
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  The US Federal Reserve is widely expected to make its first interest rate cut of the year at its policy meeting this week, spurred by a weakening jobs market — but political tension looms over the gathering.

  The Fed’s likely move would follow a monthslong push from US President Donald Trump to slash rates, and comes amid growing concern about political pressure on the central bank.

  Since the bank’s last reduction in December last year, it has held interest rates at between 4.25 percent and 4.50 percent, as policymakers monitor the effects of Trump’s sweeping tariffs on inflation.

  

  The Marriner S. Eccles Federal Reserve Board Building in Washington is pictured on June 14, 2022.

  Photo: Reuters

  Analysts now broadly expect a 25 basis points rate cut at the end of its two-day meeting on Wednesday, as hiring slows.

  “What’s interesting is that it’s very clear what the Fed is going to do when they meet,” Atlantic Council chair of international economics Josh Lipsky said. “Yet, despite that, there’s high drama around this meeting.”

  He was referring to personnel issues on the rate-setting Federal Open Market Committee (FOMC).

  While Trump has dropped threats of ousting Fed Chair Jerome Powell over renovation costs at the central bank’s Washington headquarters, the US president moved to fire Fed Governor Lisa Cook last month over mortgage fraud allegations.

  Cook, who was appointed under former US president Joe Biden and is the first black woman to serve on the Fed’s board of governors, swiftly mounted a legal challenge against her removal.

  She has managed to remain in place while the lawsuit, which could have implications for similar moves against other Fed officials, plays out.

  Meanwhile, the early resignation last month of Fed governor Adriana Kugler created a vacancy that Trump has rushed to fill with his chief economic adviser Stephen Miran.

  Miran chairs the White House Council of Economic Advisers, but has drawn criticism from Democratic lawmakers over his plans to take a leave of absence — rather than resign — from the Trump administration if confirmed.

  A panel has advanced his nomination and if confirmed quickly by the Republican-majority US Senate, he could join the Fed in its next rate meeting.

  Markets on Wednesday would be focused on signals surrounding the Fed’s future pace — and size — of rate cuts, Lipsky said.

  KPMG chief economist Diane Swonk said she expected this to mark the “start of an easing cycle that the Fed won’t want to commit to.”

  With Miran’s potential arrival, markets would be monitoring how much division there is within the FOMC on whether it should make a 25 basis points rate cut, a 50 basis points reduction or keep rates unchanged.

  “That’s not something we’re used to seeing from the Fed,” Lipsky said. “This is a group that votes almost in unison over decades.”

  Analysts also warned that broader changes to the Fed’s make-up could happen more swiftly than markets expect.

  Presidents of the 12 regional Fed banks come up for reappointment every five years, meaning the Fed board of governors could replace them — although this has not happened before.

  “The markets, I think, are underpricing some of the risks to central bank independence and what it would mean for monetary policy going forward,” Lipsky said.
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