Fed watchers anticipate rate cuts, watch for dissents

• What’s at stake: The Federal Reserve’s interest rate-setting body is expected to cut the federal funds rate by 25 basis points, but markets are also listening for hints of further and/or deeper cuts in the coming months.  
• Expert quote: “There’s the possibility that the Fed will be sending mixed messages because the consensus probably won’t be as strong as it usually is. At least some members will want a 50bps cut, while others will vote for a 25bps cut.” — Ian Katz, Capital Alpha Partners
• Forward look: The September FOMC meeting comes as erstwhile White House Council of Economic Advisers Chair Stephen Miran is sworn in as a Fed board member and a court affirmed Fed Gov. Lisa Cook’s right to remain on the board pending the outcome of her challenge to the president’s moves to remove her late last month.

All eyes are on the Federal Reserve ahead of its Sept. 17 policy decision, as the central bank weighs a potential interest rate cut amid a weakening job market and internal personnel changes.

The Federal Open Market Committee — the central bank’s monetary policy arm — kicked off its regular meeting Tuesday and Fed chair Jerome Powell is slated to announce its interest rate decision at a press conference Wednesday afternoon. This month’s meeting, however, comes amid the backdrop of an unprecedented push by the White House to gain a controlling majority on the Federal Reserve board.

Stephen Miran, the erstwhile chair of the White House Council of Economic Advisers, was confirmed by the Senate late Monday night and sworn in as a member of the Federal Reserve Board early Tuesday morning. There he is joined by Fed Gov. Lisa Cook, whom the president moved to fire for cause late last month but who a federal court ruled may continue to serve on the board pending her legal challenge to her removal. An appellate court late Monday denied a motion by the White House to bar Cook from this month’s FOMC meeting. 

Most market watchers expect the central bank to cut the federal funds rate by 25 basis points, noting that Fed officials — including Chair Jerome Powell — have voiced increasing concern over a cooling labor market.

Though a quarter-point cut is widely anticipated, some analysts say a 50-basis-point interest rate reduction is not entirely off the table. Ian Katz, managing director at Capital Alpha Partners, LLC, said the market’s reaction will hinge on how Powell and the FOMC frame monetary policy going forward.

“If Powell and the [Fed’s Summary of Economic Projections] seem cautious about future cuts, the markets might react unenthusiastically,” Katz posits. “There’s also the possibility that the Fed will be sending mixed messages because the consensus probably won’t be as strong as it usually is. I think it’s expected now that at least some members will want a 50bps cut, while others will vote for a 25bps cut.”

Aaron Klein, senior fellow at the Brookings Institution, said he’s watching not only the magnitude of the rate cut, but also whether any FOMC members might use the moment to position themselves as a potential successor to Powell. Powell’s term is set to expire in May 2026, and though President Donald Trump has repeatedly called for his removal, Powell has said he will not resign ahead of his term’s expiration.

“I’d keep an eye on people like Philip Jefferson, the vice chair appointed by Biden, who’s now on Trump’s short list for chair,” said Klein. “Trump’s 11-person list for Fed Chair includes many members of the FOMC, more than people thought.”

Following the July meeting, two FOMC members, Vice Chair for Supervision Michelle Bowman and Gov. Christopher Waller, intensified their calls for a rate reduction. Waller, in particular, urged the central bank to “get on” with slashing rates to support employment, citing signs of a softening labor data.

Mike Fratantoni, economist at the Mortgage Bankers Association, said in previous commentary that the slowdown in the job market justifies a rate cut in September. However, he warned that any additional cuts could be tempered by ongoing risk of a pickup in tariff-induced inflation.

He described the most recent jobs report published by the Bureau of Labor Statistics as “not a picture of an economy at ‘maximum employment,'” warning that labor conditions could deteriorate further in months ahead.

The most recent jobs report showed that the U.S. economy added a mere 22,000 jobs in August, a lackluster growth rate that has reinforced expectations of a rate cut. BLS reported that the unemployment rate ticked up slightly to 4.3%, while the number of new entrants to the labor market — those who are unemployed and have never had a job before — decreased by nearly 200,000, offsetting a similarly sized increase in July. 

Powell and other FOMC members have held interest rates steady since January, citing concern that Trump’s tariffs and immigration policies could drive up inflation, while also putting pressure on the labor market. 

This week’s meeting will mark Miran’s first vote on the FOMC after being confirmed by the Senate on Sept. 15. Prior to the economist’s confirmation, there was concern regarding Miran’s ability to maintain the independence of the Fed’s monetary policy. 

Miran previously indicated that he would continue to hear Trump’s perspective on interest rates, and that he wouldn’t formally resign from his position on Trump’s key economic council and would instead take an unpaid leave of absence. 

Meanwhile, Fed Gov. Lisa Cook has been cleared to vote on the FOMC board by a federal appeals court ruling, even as her suit against Trump continues to play out in court. The White House said it will appeal the ruling to the Supreme Court.Cook sued the president and the Fed after Trump posted a letter on social media informing her she was being removed from the board. The letter cited allegations that she had claimed primary residence on two mortgages taken out in 2021.

In her suit, Cook argues the removal lacked legal “cause” and violated her due process rights, since she had no opportunity to contest the charges. She included the Fed in the case to preserve her role pending the outcome. The central bank has said it will comply with the court’s ruling.