US Fed Finally Cuts Interest Rates, but First Signs of Trump’s Influence Emerge
After nine months of sitting on the sidelines, the US Federal Reserve reduced its benchmark federal funds rate by 25 basis points on September 17, 2025, lowering the target range to 4.00–4.25%. While financial markets largely expected this quarter-point move, the Fed’s future path has become less clear amid divergent views among policymakers—and subtle political pressure from former President Donald Trump.
A Break in the Tightening Cycle
The Fed’s decision represents the first rate cut since March 2024, when tightening began to tame inflation running well above the Fed’s 2% target. Over the intervening period, the Fed maintained rates at their highest levels in over two decades, prioritizing price stability even as growth slowed. This week’s cut reflects modest improvements in inflation and rising concerns over labor market slack.
“Job gains have slowed, and the unemployment rate has edged up but remains low,” the Federal Open Market Committee (FOMC) noted in its statement. The committee highlighted that inflation “has moved down somewhat, but remains elevated” and that recent data show growth moderated in the first half of the year. These mixed signals prompted the policymakers to shift from patience to modest easing.
The Split Among Fed Policymakers
Although the 25 bps cut was unanimous among voting members, internal projections reveal a Fed divided on the outlook. The widely watched “dot plot” shows nine of the 19 Fed participants—voting and nonvoting alike—forecasting another 50 bps of cuts by year-end, bringing rates to 3.50–4.00%. Meanwhile, six participants believe the Fed should hold rates steady after this cut, indicating that monetary policy may be nearing a neutral stance.
This lack of consensus signals caution. While several members see scope for further easing if economic data weaken, others worry that cutting rates too quickly could reignite inflationary pressures. As Fed Chair Jerome Powell explained, “Future adjustments will depend on incoming information and the economic outlook”.
The Trump Factor: A First Glimpse of Political Pressure
Unusually, a Fed official openly acknowledged political pressure from former President Trump, who has repeatedly criticized the Fed’s high rates as harmful to the economy and to his political standing. In the post-meeting press conference, one nonvoting governor remarked that “the public intensity of those calls cannot be ignored,” subtly signaling that political commentary had weighed on the Fed’s deliberations.
Trump has publicly targeted Chair Powell by name, calling for “big rate cuts” to boost his electoral prospects. Such interventions are rare in modern Fed history and test the central bank’s long-cherished independence. Although the Fed maintains it makes decisions based solely on economics, the openness about political influence represents a deviation from typical Fed communication.
Market Reactions: Stocks, Bonds, and the Dollar
Global markets responded briskly. US equity indices rallied on the cut and dovish signals, with the S&P 500 and Nasdaq Composite rising 1.2% and 1.5%, respectively, in the hours after the announcement. Treasury yields fell across the curve, with the two-year yield dropping 15 basis points to 4.65% and the 10-year yield falling 10 bps to 4.20%.
The US dollar weakened against major currencies, reflecting lower relative yields. The euro and yen both advanced about 0.8% versus the dollar, while commodity prices, especially gold, jumped as investors sought safe-haven assets in a looser monetary environment.
Implications for Households and Businesses
The Fed’s rate cut has tangible effects on consumers and businesses. Mortgage rates, which peaked near 7% earlier this year, are expected to retrace slightly as banks adjust pricing. Lower borrowing costs could stimulate homebuying and refinancing, offering relief to households struggling with high monthly payments.
Business borrowing costs will also ease modestly, potentially encouraging corporate investment and equipment spending. However, since the Fed’s stance remains cautious, companies may delay expansion until clearer signs of growth resumption appear.
Emerging Risks: Inflation and Global Spillovers
Despite the initial enthusiasm, risks to the outlook persist. Inflation—particularly services inflation—remains sticky, fueled by tight labor markets and rising wages. Should price pressures reaccelerate, the Fed could face pressure to reverse course, undermining credibility.
Global developments present additional uncertainties. Central banks in Europe and Japan maintain tighter policy than in recent years, and divergent monetary stances could lead to volatile cross-border capital flows. Emerging markets, sensitive to US rate cuts, may see capital inflows that boost currencies but also risk asset bubbles.
Data-Driven Year-End
All eyes now turn to key economic indicators for clues on the Fed’s next steps. The September employment report, due in early October, and September’s inflation readings will be critical. A weaker-than-expected jobs report and a further drop in core inflation could pave the way for another 25–50 bps of cuts by year-end, aligning with the majority dot plot projection.
Conversely, signs of resilient growth and persistent inflation could prompt the Fed to pause after this cut, as indicated by the six skeptical participants. With the Fed firmly couching its outlook in conditional language, each meeting from now through December will hinge on evolving data.
Balancing Growth, Inflation, and Independence
The Fed’s 25 bps rate cut marks a significant policy shift after nine months of stability and brings much-needed relief to markets and borrowers. Yet, the divided dot plot and emerging political pressure underscore the delicate balancing act facing the central bank: supporting growth without jeopardizing its inflation-fighting credibility, all while preserving independence in a highly politicized environment.
As investors parse each economic release and Fed communication in the weeks ahead, one fact stands out: the era of certainty in monetary policy is over. In its place comes a period of heightened uncertainty, where global developments, headline risks, and political commentary may all influence what was once a strictly data-driven process. The Fed’s challenge will be to navigate these choppy waters and maintain trust that its decisions prioritize long-term economic stability over short-term political considerations.
US Fed Finally Cuts Interest Rates, but First Signs of Trump’s Influence Emerge
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