AsianFin -- After nine months of holding borrowing costs steady, the Federal Reserve is widely expected to announce its first interest rate cut of 2025 at the conclusion of its two-day meeting on September 17.
The move would mark a significant policy shift, reflecting mounting concerns about a weakening labor market and sustained political pressure from President Donald Trump.
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For much of this year, Fed Chair Jerome Powell has resisted Trump’s public calls to slash rates, arguing that the central bank must weigh its dual mandate—stable prices and maximum employment. But a string of disappointing jobs reports appears to have changed the calculus.
The U.S. added just 22,000 jobs in August, according to Bureau of Labor Statistics data, while the unemployment rate rose to its highest level since 2021. Downward revisions revealed June’s employment numbers turned negative for the first time since late 2020. A separate BLS report showed firms hired nearly a million fewer workers than previously estimated in the year ending in March.
“The fourth month of sub-par employment performance signals a dramatic stall in hiring and fully supports the Fed starting rate cuts at the next meeting,” Nationwide Chief Economist Kathy Bostjancic wrote in a September 5 note.
Inflation remains above the Fed’s 2% target, with August consumer prices up 2.9% and core inflation steady at 3.1%. Still, analysts say labor market weakness outweighs inflation concerns. “A rise in jobless claims overshadows the importance of the inflation report and underscores that the labor market is losing steam,” Bostjancic said.
Powell himself acknowledged in an August speech that tariffs imposed under the Trump administration are lifting prices, but he suggested those effects may be temporary. Instead, he warned that risks to employment are growing more acute.
Futures markets now price in a roughly 92% probability of a 0.25 percentage point rate cut this week, lowering the Fed’s benchmark rate from its current 4.25%–4.5% range. Only 8% of traders expect a larger half-point cut.
Raymond James Chief Economist Eugenio Aleman noted that unless Fed officials believe the economy is on the brink of recession, “the possibility of a 50 bp cut in September may be off the table.” Still, some policymakers may push for a bolder move. JPMorgan economist Michael Feroli said governors Christopher Waller and Michelle Bowman could dissent in favor of a larger cut, while incoming governor Stephen Miran may also lean hawkish.
Deutsche Bank’s Matthew Luzzetti cautioned the decision is unlikely to be unanimous. “It could be the first meeting where three governors dissent since 1988 and the first with dissents on both sides since September 2019,” he said.
Economists remain divided on the pace of easing after September. Fed funds futures point to three cuts this year, while Bloomberg’s survey of economists shows a median expectation of two. More than 40% of respondents expect three reductions, with uncertainty over whether the second will come in October or December.
The September meeting comes amid unprecedented political drama. The Trump administration is seeking to remove Fed Governor Lisa Cook, the first Black woman on the board, accusing her of financial misconduct—a claim she denies. A federal judge ruled September 9 that Cook can remain while the case proceeds, but the administration has appealed, with a decision expected before the Fed meets.
Trump has made no secret of his desire to reshape the Fed, repeatedly criticizing Powell and demanding faster rate cuts. His attempt to oust Cook has raised alarms among economists and lawmakers who warn that undermining the Fed’s independence could destabilize financial markets.
Cook’s lawyer, Abbe Lowell, said firing her “would endanger the stability of our financial system and undermine the rule of law.”
For Powell and his colleagues, the September decision represents more than just a technical adjustment. It is a test of the Fed’s credibility in balancing economic data with political headwinds. With the economy slowing, tariffs fueling uncertainty, and the White House pressuring for easier money, the central bank’s ability to chart an independent course may prove as consequential as the rate cut itself.
If forecasts are correct, the September cut will mark the beginning of a new easing cycle—one that could shape not only the trajectory of the U.S. economy in 2025 but also the future of the Federal Reserve’s independence.
