Trump’s Influence Looms as the Fed Considers Its First Rate Reduction in 2025

The Federal Reserve’s choice to reduce interest rates by 25 basis points in September 2025 represents a major policy adjustment. Chair Jerome Powell described this move as a “risk management rate cut.” Marking the first rate decrease of the year, this decision indicates that the Fed is adjusting its approach in light of changing economic signals. Despite inflation remaining higher than the central bank’s 2% target—with core PCE inflation at 2.8%—the recent softening in the labor market has led officials to focus on preventing a deeper economic slump.

Announced on September 17, the rate cut follows mounting pressure from President Donald Trump, who has repeatedly criticized the Federal Reserve's cautious approach and advocated for faster cuts. The recent appointment of Stephen Miran, a key economic advisor to Trump, to the Federal Open Market Committee (FOMC) has brought a new level of political influence to Fed decisions. Miran, confirmed shortly before the meeting, is regarded as a central figure in shaping the administration’s economic agenda, potentially shifting the Fed away from its usual consensus-based process.

The immediate consequences of the rate reduction are expected to be relatively minor. Borrowing costs for consumers—especially for products like credit cards and car loans—may see slight decreases in the near future, though the effects will differ across financial products. For instance, interest rates for credit cards, which are currently close to a historic peak of 20%, might drop a little by early 2026. Mortgage rates, more closely tied to Treasury yields than to the Fed’s main rate, are likely to ease gradually if more cuts occur. The average 30-year fixed mortgage rate is now 6.13%, down from earlier highs this year, but most existing homeowners with fixed rates will not experience changes unless they refinance or relocate.

This move by the Fed is also seen as a reaction to a weakening job market. In the second half of 2024, employment growth slowed to an average of 29,000 new jobs each month, while recent reports show fewer job openings and unemployment rising to 4.3%. These factors have fueled worries about a possible downturn, especially as new tariffs imposed by President Trump have driven up prices on imports. According to analysis from Deloitte Insights, if these tariffs remain in place, the Fed might have to tighten policy again by 2026 to contain inflation.

Although the rate cut could offer limited relief to those borrowing money, it may create obstacles for savers. High-yield savings accounts and certificates of deposit, which currently provide rates above 4%, are expected to yield less as the Fed continues to lower its benchmark interest rate. Experts recommend that savers secure existing rates soon, since deposit interest rates tend to decline following Fed cuts.

This September reduction is viewed as the first in a series of possible rate cuts in 2025, with market expectations pointing to further decreases at upcoming FOMC meetings in October and December. Deloitte’s outlook projects the Fed may lower rates by a total of 50 basis points in 2025, reflecting the median forecast among FOMC members as of December 2024. However, additional easing will depend on trends in inflation, economic growth, and developments in trade policy.

Political involvement in the Fed’s rate decisions has introduced new challenges. The addition of Miran to the FOMC and the ongoing dispute surrounding the ousting of board member Lisa Cook underscore the administration’s efforts to steer the central bank. Some analysts warn that such political actions, if not managed carefully, could damage the Fed’s credibility by making it appear less independent. Ken Griffin, a notable Trump ally, has cautioned that too much political interference with monetary policy could weaken long-term trust in U.S. government debt.

In summary, the September rate cut by the Federal Reserve reflects a movement toward a more supportive monetary policy in response to slowing growth, elevated inflation, and intensified political scrutiny. While the direct impact may be modest at first, the broader economic and political consequences are likely to shape U.S. monetary policy for the rest of 2025 and into the future.