Washington
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Federal Reserve officials are convening Tuesday and Wednesday for a pivotal meeting under unprecedented circumstances.
On Wednesday at the conclusion of their two-day policy meeting, central bankers are expected to announce their first interest rate cut since December to support America’s slowing labor market, with the hopes that President Donald Trump’s expansive tariffs might have only a limited impact on inflation.
But there’s an elephant in the room as officials debate about the US economy: Trump’s aggressive effort to reshape the Fed’s top ranks.
On Monday, the Senate confirmed Stephen Miran, Trump’s top economic adviser, to serve on the Fed’s Board of Governors to complete a vacated term that expires at the end of January, but could be extended. Miran has said he won’t commit to resigning when his term ends if a permanent successor hasn’t been named.
After being sworn in on Tuesday morning, Miran is able to cast a vote at this week’s Fed policy meeting.
Fed Governor Lisa Cook, whom Trump tried to fire in late August, will also cast a vote at this week’s meeting. An appeals court on Monday rejected Trump’s attempt to fire Cook while her lawsuit challenging Trump’s removal order moves forward. Cook is the first Fed governor ever to be subject to a firing attempt.
The latest Fed meeting is extraordinary, not just because central bankers are finally pivoting their strategy on interest rates, but also because of the latest developments implicating the Fed’s powerful board — all while the Trump administration continues to pile pressure on the politically independent central bank.
Mounting signs of labor market weakness are a key reason why the Fed is lowering borrowing costs for the first time in nine months, coupled with Fed officials’ growing belief that tariff inflation may be short lived.
Job growth during the summer was anemic: Employers added an average of about 29,000 jobs in the three months ending in August, according to Labor Department data, slightly higher than July’s average, which was the weakest three-month pace since 2010, outside of the pandemic.
There are now more unemployed people seeking work than there are job openings; new applications for jobless benefits in the week ending September 6 rose to the highest level in nearly four years; and in August, the number of people unemployed for more than 26 weeks reached its highest level since November 2021.
A preliminary benchmark revision to employment data for the year ending in March, released last week, showed that the US labor market was on even shakier ground than previously thought heading into the summer.
Fed Chair Jerome Powell laid the groundwork for this week’s rate cut during a high-profile speech in late August, stating that “downside risks to employment are rising.” Other Fed officials have echoed those concerns in recent weeks, though they were first raised prominently by Fed governors Christopher Waller and Michelle Bowman, both Trump appointees, who backed a rate cut in July.
Fed officials’ latest economic projections, to be released on Wednesday, will show how aggressively the central bank might lower rates in the coming months with the labor market in a precarious state.
Inflation has crept up in recent months — mostly due to Trump’s sweeping policies, including his tariffs — but Fed officials have warmed up to the idea that any uptick in inflation may be temporary.
The Consumer Price Index rose 2.9% in August from a year earlier, the Labor Department reported last week, in line with economists’ expectations. For months, consumer inflation readings have mostly come in as expected, despite the chaotic rollout of Trump’s tariffs.
San Francisco Fed President Mary Daly wrote in a recent social media post that “tariff-related price increases will be a one-off.” St. Louis Fed President Alberto Musalem said in a speech earlier this month that he expects “the effects of tariffs will work through the economy over the next two to three quarters and the impact on inflation will fade after that.”
With a weakening labor market and persistent economic jitters, businesses now have less flexibility to raise prices compared to the years after the pandemic, when labor demand was red-hot and Americans’ coffers were flush with pandemic-era stimulus payments and beefed-up savings.
“Inflation has increased since the first quarter, but these numbers include the effects of import tariff increases, which, with inflation expectations anchored, I continue to expect will only temporarily raise inflation,” Waller said during an August 28 speech in Miami.
“Most forecasts are for 12-month inflation to continue to slowly increase for a couple more months, with monthly tariff effects dissipating by early 2026,” he added.
As Fed officials try to make sense of a complicated economic puzzle, the Trump administration continues to pressure the historically independent Fed.
Since the beginning of his second term, Trump has repeatedly and publicly lashed out at Powell and the Fed because officials haven’t lowered rates this year. Fed policymakers have held off on rate cuts until this week because they’ve wanted to see how Trump’s policies — and its impacts — play out first.
Trump threatened earlier this year to fire Powell, but eventually backed off after his advisers warned him that doing so could spark extreme volatility in financial markets, CNN previously reported.
In July, the Trump administration seized on the Fed’s ongoing $2.5 billion renovation of its headquarters in Washington, DC, as an opening to fire Powell, claiming it was mismanaged. At one point, Trump and Powell publicly feuded over the total cost of the project.
Now, Trump is trying to oust Cook, citing allegations of mortgage fraud, which the Justice Department is actively investigating. The courts are keeping Cook in her job while her lawsuit challenging Trump’s attempt to oust her moves forward in litigation. New documents reported by the Associated Press show that Cook’s Atlanta condo, which the administration alleges is one of two properties she designated as a primary residence, was declared as a vacation home. Cook has denied any wrongdoing.
While Cook’s position remains in limbo, newly confirmed Fed governor Miran has elicited concerns from Democrats over his close ties with the president. For his part, Miran has said he will abide by ethics rules and federal law, and form independent opinions about the economy.
“I’m very independently minded, as shown by my willingness to stray from consensus and have out-of-consensus views, and I believe that I will continue to be as independent in my thinking process, if confirmed,” Miran said during his confirmation hearing.
Trump has said he wants a majority of Republicans on the Fed’s Board of Governors, and Miran’s confirmation process was swiftly shepherded through, taking only about a month from when he was nominated to when he got sworn in. The process typically takes a couple of months.
Trump’s insistence on lower rates likely sped up that timeline in order to get Miran on the Fed’s board in time for the September meeting. Fed watchers already overwhelmingly expect the Fed to announce at least a quarter-point cut at the conclusion of the meeting, with or without Miran.