The Fed faces a difficult meeting with Trump on the doorstep

WashingtonFor the first time in years, investors and analysts are focusing on more than just the Federal Reserve's interest rate decision—it's expected to cut rates after months of keeping them frozen at around 4.25%. Wednesday's meeting isn't a typical one, because for the first time the White House, and Donald Trump in particular, has set foot on the doorstep of the US central bank. The Fed's decision will be voted on by a new governor confirmed by the Senate this Monday: Stephen Miran, chosen by Donald Trump. Another, Lisa Cook, has been shining in the courts for days with the US president's attempts to remove her.

Since Trump won the election on November 5, the Fed has tried to keep a cool head. Announcements of 20% or 50% tariffs via Truth Social early in the morning or late at night don't fit the definition of stability that markets now crave. Neither do pressures on companies like Intel or Apple to obtain stakes or investments. For nine months, central bank officials have been weighing and calculating the delicate balance between rising inflation—which remains far from the 2% target—and unemployment data. All indications are that concerns about the cooling labor market will eventually prevail over high inflation—2.9% in August—and the bank is expected to cut rates by a quarter of a percentage point today.

The decision on interest rates, whether they are lowered or not, will be influenced by the pressure campaign that Trump has been waging against the US central bank for months. He has repeatedly threatened to fire Fed Chairman Jerome Powell for failing to lower the price of money. As if the atmosphere weren't already tense enough, Miran will cast his vote as the new governor without having attended any of the preliminary meetings. He was sworn in just yesterday and has already announced that he would only take a leave of absence from his position as chairman of the White House Council of Economic Advisers until the vacancy expires on January 31 of next year.

Miran is a staunch defender of Trump's tariffs, and his role in the vote, emboldened by prior pressure from the White House, only adds to the uncertainty. The cut is expected to be 0.25 percentage points, but Miran's role as a Trojan horse within the bank makes the figure volatile. One of the reasons Trump wants the Fed to lower the price of money is to make US debt cheaper for the White House. In August, the Treasury Department reached a record level of public debt: $37 trillion. Even with the revenue Trump expects to obtain from tariffs, the country is still likely to register a deficit of approximately 6% this year.

Meanwhile, the Fed's frayed independence continues to hang by a thread in the courts. On Monday, Cook achieved another judicial victory: an appeals court rejected the Trump administration's challenge to the injunction blocking its attempt to fire her. Still, the Republican administration is already preparing another. The president has tried to remove Cook based on allegations of mortgage fraud that have not been proven in court. If Trump wins in court and creates the precedent of being able to remove the bank's governors based on accusations alone, the Fed's independence could crumble.

Powell already timidly opened up to cutting the price of money in August, amid concerns about the latest unemployment data. "The balance of risks appears to be shifting," said the Fed chairman, who defines it as "a curious kind of balance resulting from a marked slowdown in both the supply of and demand for workers." The slowdown Powell was referring to was the employment data released by the Bureau of Labor Statistics, which indicated that only 73,000 new jobs were created in July, well below the 110,000 analysts had expected.

Enraged, Trump fired the director of the Bureau of Labor Statistics, Erika McEntarfer, accusing her of manipulating the data. In her place, he has now appointed economist at the Heritage Foundation -it think tank ultraconservative who propelled the Republican's candidacy and created Project 2025-EJ Antoni. Even so, the data from the August jobs report hasn't been much better and continues to challenge the prosperous portrait the president insists on painting. Last month, only 22,000 jobs were created, and the unemployment rate rose slightly, from 4.2% to 4.3%, its highest in almost four years. On the other hand, the revised employment data concluded that 13,000 jobs had already been destroyed in June, the first net loss since late 2020, in the midst of the pandemic.

During these months, Powell has been talking about balances precisely because lowering rates has an inflationary effect while also helping to stimulate job creation. With the consolidation of a downward trend among jobs, it finally seems that the Fed might be willing to accept the inflationary consequences of a rate cut. A slowdown in the labor market is often one of the first warning signs of a possible recession. In the summer of 2024, in the midst of the election campaign, the markets have already panicked when the US employment data for July was released. The figures that sent the stock market into a tailspin were these: 114,000 jobs had been created (much fewer than expected) and the unemployment rate had risen to 4.3%. A year and a half later, the numbers are familiar.