The Federal Reserve announced a cut to interest rates for the first time in 2025, responding to mounting concerns over the labor market as job growth slows. At a brainstorming meeting on July 24, the team reached an important crossroads. Former President Donald Trump pushed relentlessly, publicly calling for deeper rate cuts. The federal funds rate is now set between 4% and 4.25%. This is a substantial drop from the much higher rates set to fight inflation surges during the pandemic.
Even Jerome Powell, chair of the Federal Reserve, has called attention to the strange nature of today’s economic climate. “It’s a challenging situation when our goals are in tension like this,” he stated, highlighting the balancing act between controlling inflation and supporting job growth. Powell noted that the Fed remains “strongly committed to maintaining our independence,” despite the external pressures exerted by the Trump administration.
During his unprecedented visit to the Federal Reserve in Washington, DC, that day, Trump doubled down on his opposition to rising interest rates. In a social media post following the meeting, Trump demanded that Powell “MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND.” This rare public rebuke signals the deepening animus between the current President and his monetary authority. Specifically, Trump’s effort to influence monetary policy goes to the heart of the asymmetric election cycle.
Together, these challenging economic conditions make for a tough set of circumstances for the Fed. Powell pointed out that “job gains have slowed and downside risks to employment have risen,” which contributed to the decision to lower rates. The Fed’s move addresses a worrying simultaneous hiring slowdown. Inflation is hitting a multi-decade high, creating a double whammy for policymakers.
This announcement comes with very high stakes. It follows months of lobbying by Trump, who has been personally and publicly leaning on Fed Chairman Jerome Powell to shake up the Fed leadership. Most recently, he used his authority to fire one member of the Fed’s board of governors. At the same time, he’s busily working to ensure Senate confirmation for yet another appointee. This change in personnel has left many Americans queasy by raising the specter of the potential monetization of policy politics.
In other legal news, a federal judge granted a preliminary injunction. Because of this decision, Lisa Cook can continue to serve as one of the six noncommercial governors of the Federal Reserve System. That ruling came shortly after an appeals court rejected Trump’s effort to remove her from office. Cook responded to the controversy, stating, “I have no intention of being bullied to step down from my position because of some questions raised in a tweet.” Her continued presence on the board ensures a more diverse range of perspectives as the Fed navigates this complex economic environment.
Powell and other officials sweat as they were about to make the call on the interest-rate decision. Stephen Miran unexpectedly broke with the group and, upon consultation with legal counsel, cast the lone dissenting vote. His pointed dissent, one devoid of the usual pleasantries, lays bare the deepening fissures on the board over how best to confront pressing economic challenges.
