And Senate Republicans are rushing to vote Monday to confirm Trump nominee Stephen Miran to a newly open seat in time for the meeting. Miran has said he will not resign as a top White House economic official and will only take an unpaid leave while serving at the Fed, raising concerns he will be doing Trump’s bidding on a board that is not supposed to consider politics in its decisions. Miran promised at his confirmation hearing he would act independently.
Those moves are part of an extraordinary effort by Trump to push Fed officials to lower their key interest rate significantly, forcing them to juggle intense economic and political pressures not seen since the turbulent 1970s. Political interference in the Fed’s interest rate decisions back then helped trigger high inflation, as it has historically in other countries.
“I don’t envy their job right now,” said Diane Swonk, a longtime Fed observer who is the chief economist at audit and consulting firm KPMG. “It’s a very tough position to be in.”
At stake is the future of the US economy at a pivotal moment. Trump’s tariffs have reignited post-pandemic inflation that was finally nearing normal levels at the start of the year. At the same time, Trump’s trade war, along with his aggressive immigration crackdown, is blamed for slowing US economic growth and job creation.
By law, the Fed must seek to keep prices stable and maximize employment. That dual mandate creates a dilemma in these unusual circumstances because the monetary policy prescriptions for both are at odds, said Princeton economist Alan S. Blinder.
“If you’re interested in fighting inflation, you raise interest rates. If you’re interested in fighting unemployment, you lower interest rates,” said Blinder, a former Fed vice chair. “You can’t do both at the same time.”
With strong recent signals that employment growth has fallen dangerously low, Fed officials are expected to announce Wednesday they are lowering their benchmark interest rate for the first time since December.
Given the continuing threat of inflation, however, the reduction is expected to be modest, just a quarter percentage point from the current range of 4.25 percent to 4.5 percent. That would put the interest rate far short of the 1 percent level Trump has publicly clamored for, and there is intense political pressure on Fed officials to be more aggressive.
Reflecting the difficult circumstances, Fed officials could dissent on both sides of this week’s interest rate vote: from those who want a larger cut, to those who want to hold rates steady.
“It’s a very, very complex situation,” said Donald Kohn, who was Fed vice chair from 2006 to 2010.
He served during one of the nation’s most tumultuous economic periods, when central bank officials had to navigate the 2008 global financial crisis and the Great Recession. While conditions then were more severe, the Fed’s strategy was simpler because it was all about stimulating the economy, said Kohn, now a senior fellow in economic studies at the Brookings Institution think tank.
“It wasn’t about tradeoffs,” Kohn said. “Now this is about tradeoffs.”
If the Fed pushes interest rates too low, inflation could jump again. But if the Fed keeps interest rates too high, the economy could fall into recession.
“You can’t move as aggressively as you’d like … because of the uncertainty. It’s a no-win situation,” said Swonk. “We haven’t seen anything like this whatsoever since the 1970s.”
The dual problem of stagnant economic growth and high inflation is known as stagflation, a toxic mashup that is difficult to tackle and plagued that decade. The situation was made worse by behind-the-scenes political pressure on the Fed to keep interest rates low by Presidents Lyndon Johnson and Richard Nixon.
“The president’s personal and political interests are much shorter term than the public’s,” said Gary Richardson, an economics professor at the University of California Irvine, who served as the Fed’s official historian from 2012 to 2016. “Policies that lower the interest rate can juice up the economy in the short run, but have long run costs. They create inflation. They kind of disrupt the economy.”
The experience of high inflation in the 1970s — the annual consumer price index often spiked to double digits — led to decades of presidents being careful to let the Fed operate independently. Trump changed that in his first term when he publicly attacked Powell, a Republican whom he appointed chair, for raising interest rates to head off inflation after the 2017 Republican tax cuts.
Trump has been even more aggressive in his second term, frequently slamming Powell for not lowering interest rates despite the legitimate fear of inflation from the high tariffs, which are paid by US importers who often pass the cost on to consumers.
Trump declared during the 2024 campaign that he should have a say in the Fed’s interest rate decisions and last spring said he was considering firing Powell. The president backed off his threat to fire Powell, whose term as chair expires in May 2026, after the comments rattled investors.
Fed officials can’t be fired over policy disputes, only for cause, such as malfeasance. So Trump and his allies have tried to find reasons that would allow him to remake the central bank’s board. They’ve suggested Powell might have committed fraud in overseeing the ballooning costs of renovating the Fed’s Washington headquarters. And Trump has moved to fire Cook based on allegations from his housing finance regulator that she claimed two primary residences on mortgage applications before President Biden appointed her to the the Fed board in 2022.
Blinder wrote an opinion article in The Wall Street Journal on Wednesday warning about the risk to the Fed’s independence from Trump and told the Globe that Miran would be “a White House mole” at the central bank if he’s confirmed. Democrats are also raising alarms, with Massachusetts Senator Elizabeth Warren saying, “Miran’s nomination is just the next phase of President Trump’s very public months-long campaign to stack the Fed with loyalists.”
Richardson, the former Fed historian, said the confluence of economic and political factors faced by central bank officials is a “once in a century event.”
“We’re in a very tough time … so the consequences of making wrong moves could be severe, particularly in the long run,“ he said. ”As a historian, I would just say it’s going to be interesting.”
Jim Puzzanghera can be reached at jim.puzzanghera@globe.com. Follow him @JimPuzzanghera.