The US Federal Reserve will be cutting both camaraderie and borrowing costs. This week's meeting of the central bank's monetary policymaking committee is on track to be one of the most contentious in recent memory, featuring newly installed White House economic adviser Stephen Miran as a governor alongside Lisa Cook, who President Donald Trump is trying to oust by leveling unsubstantiated allegations of mortgage fraud. The circus-like atmosphere only undermines the administration's aims.
A telegraphed and highly anticipated reduction in benchmark interest rates, to between 4 percent and 4.25 percent, probably would have happened sooner. Instead, Trump complicated matters with inflationary tariffs and yield-rattling attacks on Fed independence. Amid his repeated cries for cheaper money, the president has publicly lambasted Chair Jerome Powell for being "too late," stymying a housing market recovery and the accompanying spending.
Powell's caution is well-reasoned, however. The consumer price index increased to 2.9 percent in August from a year earlier, its highest reading for 2025. Cars, clothes, food and housing all became costlier, with nagging fears of greater increases as Trump's trade war progresses.
The tense equilibrium between inflation and weaker employment also may be tipping. Companies have been unable to pass on the entirety of extra tariffs. Stretched shoppers are footing about 30 percent of the bill and exporters 10 percent of it, while importers cover nearly 60 percent, according to Piper Sandler analysts. With monthly job additions stalling over the summer, the Fed is now focused on growth, too, instead of just prices.
This looming rate cut could have been less contentious. Miran, a Trump loyalist who has expressed a desire to put the central bank under the executive branch's purview, is a fox in the Fed henhouse. By confirming his appointment, Republican senators also betray their lack of commitment to independence. Multiple federal courts have ruled against the attempts to fire Cook, yet the administration is pushing the Supreme Court to decide.
A central bank left at arm's length from elected officials is better able to resolve macroeconomic emergencies and act in response to fiscal policy with less influence from political bias, a structure beneficial to investors. Consider some evidence from US bonds. The yield on 30-year Treasury notes was 3.9 percent in mid-September 2024 when Democrat Kamala Harris was the presidential frontrunner even though the Fed's benchmark interest rate was more than 5 percent. It now trades at about 4 percent. Trump's avowed desire to make it cheaper to borrow is directly contradicted by his own actions.
The US Federal Reserve's monetary policymaking committee is due to convene on September 16-17 in Washington, during which Chair Jerome Powell has signaled plans to lower the benchmark interest rate by 0.25 percentage points to a range between 4 percent and 4.25 percent.
Stephen Miran, on leave from his job as chairman of President Donald Trump's Council of Economic Advisers, will participate in the meeting after the Senate confirmed his appointment to the Federal Reserve Board of Governors on September 15.
Fed Governor Lisa Cook will also participate in the Federal Open Market Committee meeting after a US appeals court prevented the Trump administration from firing her over allegations of mortgage fraud without evidence.
