Trump has lost a couple of battles recently in his war on the Fed: He hasn’t succeeded in ousting Federal Governor Lisa Cook, and his calls for a significant cut are likely to go unanswered.
On Sunday night the president told reporters: “I think you have a big cut” to come out of the Federal Open Market Committee (FOMC) meeting this week. He added: “I don’t think he can help but cut. It’s perfect for cutting.”
Trump has been pressuring Powell to cut since winning the Oval Office (despite lobbying for the contrary before the elections). He has even given Powell the nickname of “Too Late” for, in his opinion, being delayed in reducing the base rate as market conditions have changed. Not to miss an opportunity to criticize Powell, Trump added this weekend that the Fed chairman is “incompetent.”
While many analysts agree the economic environment does call for a reduction in the base rate, currently at 4.25% to 4.5%, few believe the committee will go further than reduction of a single click (25 basis points). Some speculators, like Treasury Secretary Scott Bessent, believe the Fed should cut harder by 50 bps.
Yet overall the market isn’t sold on this strategy, with interest investors pricing in only a 3.9% chance of the FOMC reducing the rate to 3.75% to 4%.
In addition to Trump’s demands being potentially outsized, his bid for a more favorable voting board has also been nixed. Trump and members of his team claimed Lisa Cook made false statements on mortgage agreements. Writing on Truth Social last month, Trump alleged Cook claimed two primary residences (in Ann Arbor and Atlanta) in 2021 in order to secure better terms and he was “removing” her from her post as such.
Cook took the matter to court, and a federal appeals court ruled yesterday that the economist could not be ousted from her post by the White House.
With Cook’s voting position secured just in time for the FOMC meeting which will conclude today, Trump has lost the chance to replace the governor with a more dovish expert of his own.
The Miran effect
Those lobbying for a cut will have a friendly face at the table in the form of Stephen Miran, a White House advisor who will temporarily sit on the FOMC as a replacement for governor Adriana Kugler.
Miran, chair of the Council of Economic Advisers, will retain his role as an advisor to the Trump team—a move which has raised eyebrows among those most concerned about the independence of the Fed from political meddling.
The new-joiner’s argument for a cut—of however much—is clear. Looking at the Fed’s mandate, inflation is warm but not too hot, and the employment side of the Fed’s responsibility is looking shaky.
The Bureau of Labor Statistics reported that last month the U.S. added a meagre 22,000 jobs, and further revisions to the year ended March 2025 showed America had added near-a million roles less than previously believed. While this larger revision is of little use to policy decisions moving forward, it does bolster the argument that the labor market is performing significantly worse than previously hoped.
Even then, analysts don’t believe a cut of more than 25bps will be announced when the meeting concludes this afternoon. Macquarie’s David Doyle wrote in a note seen by Fortune that he expects the smaller reduction, adding: “There may be dissents in favor of a 50 bps cut. Governors Waller and Bowman dissented in July (for 25 bps), while it is likely that Stephen Miran … may also dissent.
“Statement language changes could tilt in a dovish direction, reflecting the recent deterioration in the labor market data. Chair Powell is likely to echo his tone from Jackson Hole during his press conference and emphasize that a shift in the balance of risks warrants an adjustment to the policy rate.”
Indeed, even while Wharton’s Professor Jeremy Siegel believes the base rate should already be around the 3% mark, he isn’t advocating for a larger cut. Writing for WisdomTree, where he is senior economist, Professor Siegel wrote: “If the Committee delivers 25 [this] week and then cuts at each subsequent meeting through year-end, that’s 75 basis points by December 31, enough to keep growth on track and reduce the odds of a policy-induced stall.”
