Will Powell and the Fed cut rates in response to Trump’s pressure?

The Federal Reserve is set to announce its latest decision on interest rates this week amid President Donald Trump’s efforts to lobby the central bank into lowering rates.

The Federal Open Market Committee (FOMC), the central bank’s monetary policy-setting panel, kicks off a two-day meeting on Tuesday and will announce its interest rate decision on Wednesday, when Fed Chair Jerome Powell will also hold a press conference.

Trump has repeatedly criticized Powell for not cutting rates, which he says is costing the federal government billions of dollars in interest expenses incurred through servicing the national debt. Powell has pointed to concerns about tariffs pushing inflation further away from the Fed’s 2% target rate as the reason for holding off rate cuts. 

Last week, Trump became just the fourth president to ever visit the Fed as he and allies went to tour the central bank’s headquarters amid an ongoing renovation that has drawn criticism for being over budgeted. During the visit, the president took the in-person opportunity to repeat his call for interest rate cuts.

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“I think that Jerome Powell, I think we had a very good meeting, forgetting about the building that’s out of control and all that, but I think we had a very good meeting on interest rates,” Trump said following his conversation with Powell. “He said congratulations, the country is doing very well, and I got that to mean that I think he’s going to start recommending lower rates.”

Powell has stressed that the Federal Reserve isn’t in a hurry to cut interest rates due to the uncertainty surrounding the impact of tariffs on inflation and consumer prices. 

He has said that in its current posture, the Fed is well-positioned to respond to risks to both sides of the central bank’s dual mandate, which is to promote stable prices in line with a long-run 2% inflation target, along with fostering maximum employment. Inflation has remained persistently above the Fed’s 2% target despite progress in slowing its pace from the 40-year high reached in 2022 during the Biden administration.

Though Powell is the Fed chair, he and the other Fed governors who comprise the 12-person FOMC are responsible for collectively making decisions about moves in the central bank’s benchmark federal funds rate. That range has been at 4.25% to 4.5% since the FOMC’s last cut in December 2024.

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One voting member of the panel, Fed Governor Christopher Waller, signaled in advance of the meeting that he believes the Fed should cut interest rates, dismissing concerns about tariffs fueling inflation and arguing they would cause a one-time price hike that policymakers should look past. 

Fed Governor Michelle Bowman has also said that she believes an interest rate cut may be needed at this meeting to prevent a further weakening of the labor market.

The market expects the Fed to hold rates steady again for the fifth consecutive meeting, with the CME FedWatch tool showing a 96.9% chance of rates remaining at their current level, which is up from 81.4% a month ago.

If this FOMC meeting goes as the market expects, Waller, Bowman and other like-minded policymakers who vote against the majority view could author dissents outlining how they think the Fed should have proceeded. Bowman was the most recent Fed governor to author a public dissent when she said the Fed should have cut just 25 basis points instead of 50 last September.

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Despite the differing perspectives of Fed governors, the market thinks the FOMC’s majority will come around to cutting rates before the end of 2025.

The CME FedWatch tool currently shows a 63.7% chance of a 25 basis point cut at the next FOMC meeting in mid-September. After the Fed’s late October meeting, the tool shows a 50.5% chance that interest rates will be 25 basis points and a 29.7% chance they will be 50 basis points lower. 

Further, it shows a 19% chance that the target rate will be 75 basis points lower than its current level after the Fed’s early December meeting, compared to a 42.8% chance of a 50 basis point reduction, a 30.7% chance of a 25 basis point cut and just a 7% chance of the funds rate staying at its current level through the end of the year.