Fed expected to cut rates, revise economic outlook

WASHINGTON: The US Federal Reserve is set to conclude its most politically charged meeting in years on Wednesday, with broad expectations for a quarter-percentage-point interest rate cut. Some policymakers may dissent, arguing the move is either too small and too late or not warranted at all.
Just as important will be updated projections showing where policymakers see the economy and monetary policy heading eight months into President Donald Trump's economic policy revisions and ongoing pressure on the central bank to lower borrowing costs.
One likely critic of the outcome is Trump himself, who wants deeper rate cuts despite a still-healthy economy. Governor Stephen Miran, formerly chair of Trump's Council of Economic Advisers, was sworn in as a Fed board member on Tuesday, while the administration continues its effort to remove Governor Lisa Cook, who is litigating to keep her position.
Cook denies any wrongdoing and has not been charged. Amidst this backdrop, Fed officials will review the latest economic data, update their assessment of Trump's impact on the economy and release a new policy statement and projections at 2 pm EDT, followed by a press conference by Chair Jerome Powell at 2:30 pm EDT.
A quarter-point cut has been widely expected after softening job market data over the summer. After a July meeting produced two dissents advocating a rate cut, this week's session could see even more disagreement. Analysts anticipate Miran may push for a larger cut, potentially joined by Trump-appointed governors Christopher Waller and Michelle Bowman, while at least one Reserve Bank president may maintain a hawkish stance.
The projections released with the rate decision will extend through the end of 2028, spanning Trump’s full term. While long-term forecasts focus on trend growth, near-term projections will reflect updated views on inflation, unemployment and interest rates. June projections showed concerns about inflation from Trump's import taxes, but recent data suggests slower employment growth than expected. Powell has noted that the impact of tariffs on inflation may be temporary, warranting a rate adjustment.
Investors anticipate rate reductions of a quarter percentage point in September, October and December, with slower cuts next year. The rate has been held at 4.25%-4.50% since December after three reductions totalling a full percentage point in late 2024. Policymakers will need to weigh labour market risks against inflationary pressures, which may rise for the remainder of the year. In June, the median projection for the Fed's preferred inflation measure, the Personal Consumption Expenditures price index, was 3% for Q4, above the 2% target. — Reuters