Federal Reserve Chairman Jerome Powell speaks at Jackson Hole on Aug. 22, 2025 in Wyoming.
David A. Grogan | CNBC
The Federal Reserve meets this week with some big items on the agenda: An important rate decision and forecast of what’s ahead, combined with a healthy dose of political intrigue uncommon for central bank policymakers.
On the monetary side, the Federal Open Market Committee on Wednesday will release its ruling on where it will set the overnight borrowing rate. Along with that, officials will sketch their outlook for what’s ahead for rates on the closely followed “dot plot” grid.
Politically, there will be one new Fed governor, President Donald Trump’s appointee Stephen Miran, who almost certainly will dissent from the widely expected decision to lower the federal funds rate by a quarter percentage point, opting for an even bigger cut. Others may vote against the move as well, and there even could be a vote against the reduction as officials weigh softening in the labor market against worries of tariff-induced inflation.
So while the rate decision is fairly pretty much in the bag, what happens from there is anybody’s guess.
“The goals of the Fed’s dual mandate are in ‘tension’ and are likely to become more so going forward,” said John Velis, Americas strategist at BNY. “Add in the growing politicization of the Fed, and things are getting complicated for the central bank.”
Push for a big cut
The two-day meeting kicked off Tuesday with the swearing in of new Governor Stephen Miran, the Council of Economic Advisers’ chair and staunch Fed critic. The Senate on Monday confirmed Miran, who will serve out the remainder of former Adriana Kugler’s term, which runs through January.
Though he has not stated explicitly where he will vote, Miran is expected to buck the committee’s decision to lower incrementally. Trump on Monday again urged the committee and Chair Jerome Powell to lower aggressively, saying in a social media post that the FOMC “MUST CUT INTEREST RATES, NOW, AND BIGGER THAN [Powell] HAD IN MIND.”
In a CNBC interview Tuesday, Treasury Secretary Scott Bessent encouraged the Fed to provide a “fulsome” cut.
“President Trump’s very sophisticated economically, and I think he has been right at almost every turn,” he said. “The problem has been that the Fed has been behind the curve. We’re hoping they will start catching up in a rather fulsome way.”
Fed watchers expect Governors Christopher Waller and Michelle Bowman, both Trump appointees, also could dissent in favor of a larger move, while Kansas City Fed President Jeffrey Schmid and perhaps St. Louis Fed President Alberto Musalem might opt to favor no cut, though nothing is certain.
Regardless of the White House’s demands and whatever fissures there are on the FOMC, markets are betting heavily that the Fed will stick to the quarter-point, or 25 basis point, reduction from the current target range of 4.25%-4.5%. From there, traders are assigning a better than 70% chance of cuts in both October and December, according to the CME Group’s FedWatch Tool, which gauges rate cut probabilities using 30-day fed funds futures contract prices.
“The dissents would highlight the splits emerging on the committee, but still leave a much larger center group that agrees that it is time to start the recalibration process by cutting 25 [basis points] in September,” wrote Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
That pace may not be enough to satisfy Trump, who in addition to getting Miran confirmed has been pushing for the ouster of Governor Lisa Cook and has indicated he will replace Powell as chair when his term expires in May 2026.
Focus on Powell
However, it follows the expectation of most economists.
“The key question for the September FOMC meeting is whether the committee will signal that this is likely the first in a series of consecutive cuts,” Goldman Sachs economist David Mericle said in a note. “We expect the statement to acknowledge the softening in the labor market but do not expect a change to the policy guidance or a nod to an October cut. However, Chair Powell might hint softly in that direction in his press conference.”
Mericle expects the dot plot to signal two rather than three cuts “though by a narrow margin.”
Indeed, Powell’s choice of words at the post-meeting parley with reporters often is more important than the FOMC statement. Along with the statement and dot plot release, officials will update their forecasts for gross domestic product, unemployment and inflation.
At his Jackson Hole, Wyoming speech in August, Powell struck a slightly dovish tone, indicating it’s likely policy changes are ahead while not quantifying how aggressive he thinks those moves should be.
“I think he sounds like he did in Jackson Hole, where for the first time he said the data dependency that drives our decision making has changed significantly, and we need to defend our full employment mandate more than we need to defend our inflation mandate,” said Art Hogan, chief market strategist at B. Riley Wealth Management. “The tone is going to be very pragmatic, but more dovish than hawkish.”