Wednesday’s Fed Meeting Will Be Extraordinary. Here’s Why

The Federal Reserve is widely expected to cut rates Wednesday, at the conclusion of a two-day meeting that is full of more intrigue than usual.

One aspect of the meeting is a foregone conclusion: The central bank will almost certainly cut its benchmark interest rate by a quarter-point to a range of 4% to 4.25%, in an effort to lower borrowing costs and boost the ailing job market. Other decisions are more up-in-the-air, including who will be on the Fed’s interest rate committee and its outlook for future rate cuts.

With inflation running hotter than the Fed’s goal of a 2% annual rate while the job market is also faltering, the Fed is facing a fundamental challenge to its dual mandate to keep inflation low and employment high.

The Fed is also under enormous political pressure from the White House. President Donald Trump has demanded steep interest rate cuts and tried to fire Fed Governor Lisa Cook.

Rate Cut Is All But Certain

As of Friday, financial markets were pricing in near certainty that the Fed will cut a quarter-point, with a 6.6% chance of a half-point cut instead, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. It would be the first rate cut since December.

The Fed would need to keep rates elevated to prioritize fighting inflation, which Trump’s tariffs could stoke. But if it aims instead to support the job market, it will cut rates. Many economists say Trump’s economic policies, especially his sweeping campaign of import taxes, have both lifted inflation and hurt jobs.

Lately, the job market has shown more red flags than the inflation outlook, making the Fed more likely to cut. According to the latest government data, the economy has gained very few jobs since May and even lost jobs in June. In addition, the bureau downwardly revised its job creation estimates for late 2024 and early 2025 by 911,000.

Meanwhile, inflation rose in August, but probably not at a high enough rate to discourage the Fed from cutting rates. Consumer prices rose 2.9% over the last 12 months, according to the Consumer Price Index, the highest reading since January. “Core” inflation, which excludes volatile prices for food and energy, was at 3.1% over the year, well above the Fed’s 2% target.

“Despite bubbling inflation, we believe that the precarious state of the labor market will motivate the Fed to cut interest rates in September and further into next year,” economists at Wells Fargo Securities wrote in a commentary.

How Many More Cuts To Come?

Fed officials will also release their quarterly estimates for how they expect the economy to perform and where rates will be in the coming months and years. In the last set of projections from June, officials estimated the Fed funds rate would be between 3.75% and 4% by the end of the year. Following the September cut, the Fed would have to cut rates by another quarter point this year to fulfill that prediction.

Some forecasters expect the committee to pencil in additional rate cuts in light of the worrying jobs data. Economists at Deutsche Bank, for instance, expect the median projections to show two more quarter-point cuts this year, bringing the rate down to a range of 3.5% to 3.75%.

Divisions Within The Fed

Usually, the 12-person Federal Open Market Committee votes on interest rates unanimously, with policymakers seeking to arrive at a consensus.

That may not be the case on Wednesday, however, as in recent weeks, Fed officials have voiced different views about what the central bank should do. Some have indicated support for faster rate cuts, a few have favored keeping rates flat, and others said they prefer rate cuts but at a slow pace.

This means it’s possible that the FOMC could have committee members voting for three different policies, a rare occurrence.

“This decision is unlikely to be unanimous,” economists at Deutsche Bank led by Matthew Luzetti wrote in a commentary. “[This] could be the first meeting where three governors dissent since 1988 and the first with dissents on both sides since September 2019.”

In July, Governors Michelle Bowman and Christopher Waller voted to cut rates, going against the majority’s decision to keep them flat.

Two Fed Governor Seats Are In Play

The meeting is also a turning point in President Donald Trump’s efforts to install his own nominees onto the FOMC and needle the Fed into dramatically lowering interest rates.

As the FOMC prepares to meet, a legal battle is proceeding about whether Fed Governor Lisa Cook will take her seat on the committee. Trump fired Cook last month, marking the first time in history a president has dismissed a member of the Fed’s board of governors. Cook sued to stop the firing, arguing that Trump did not have the authority to do so, and won a temporary injunction that allowed her to stay on the job for now. Trump has appealed the order, asking the court to rule quickly and allow Cook’s dismissal in advance of the Tuesday meeting, the New York Times reported.

Separately, Stephen Miran, a White House economic advisor whom Trump has nominated to the Fed’s board of governors, may or may not attend the meeting, depending on whether the Senate votes to confirm him by Tuesday.

So far, no members of the FOMC, not even those that Trump had placed on the board in the past, have called for the kind of steep rate cuts Trump has demanded. Economists have warned that Trump’s attacks on the Fed’s independence could pressure the bank to keep rates too low, which could then fuel inflation.