Fed's Quarter-Point Rate Reduction Shows Careful Approach as Trump Urges Action

The U.S. Federal Reserve lowered its benchmark interest rate by 25 basis points on September 17, 2025, setting the federal funds rate at 4.00%-4.25%. This was the first rate cut since December 2024. Fed Chair Jerome Powell highlighted the need for caution, pushing back against President Donald Trump’s calls for a larger 50-basis-point cut. “There was not strong backing for a 50 basis point move,” Powell explained at the post-meeting press briefing, clarifying that the Fed is taking a “meeting-by-meeting” approach to weigh inflation against labor market stability title2 [ 2 ]. The vote passed with 11 out of 12 FOMC members in favor, with only Stephen Miran, a Trump appointee, opposing title2 [ 2 ].

This rate reduction ends a 15-month stretch without policy easing, prompted by a cooling job market and inflationary pressures related to Trump’s tariffs. Powell acknowledged that although inflation stayed above the 2% target, recent figures indicated “a very different picture” of risk, as the labor market softened and unemployment edged up title2 [ 2 ]. He also cautioned that tariffs’ impact on product prices might “keep accumulating” through 2026, making it harder for the Fed to speed up rate cuts title2 [ 2 ]. Observers described the move as one of “risk management,” not aggressive monetary loosening, with

calling it part of a “peak Goldilocks” scenario, where subdued labor growth and stable inflation make gradual easing appropriate title1 [ 1 ].

Following the announcement, Treasury yields initially surged, with the 10-year yield reaching 4.12%—a two-week high—before retreating as investors adjusted to the Fed’s cautious signal. Previously, bond markets had expected a more aggressive pace of rate cuts, with futures suggesting two or three more decreases in 2025. Powell’s measured stance tempered those expectations, despite the Fed’s updated “dot plot” indicating two additional cuts this year and another in 2026 title2 [ 2 ]. Amar Reganti from Hartford Funds highlighted the disconnect between market hopes and the Fed’s careful posture, observing that the central bank’s unwillingness to “validate aggressive forecasts” slowed the bond rally’s momentum.

Political pressure on the Fed intensified as Trump continued to criticize Powell, hinting at a possible replacement before Powell’s term ends in May 2026. “He’s terrible,” Trump said at a NATO event, though no immediate action was taken. The administration is said to be looking at candidates such as David Zervos from Jefferies and BlackRock’s Rick Rieder as possible successors title2 [ 2 ]. Powell, meanwhile, defended the Fed’s autonomy, asserting that the central bank acts “free from political interference” and would not “bend to the administration’s wishes” title2 [ 2 ]. Experts like JPMorgan’s David Kelly argued that the single dissent in the rate vote highlighted the Fed’s independent decision-making title2 [ 2 ].

Looking forward, the Fed faces a complex environment. The labor market is showing signs of slowing while inflation remains stubbornly high, and Trump’s tariffs alongside geopolitical developments—such as recent U.S.-Iran ceasefire news—add further uncertainty. The Fed’s careful posture also influenced the dollar, which rose 0.14% on a Bloomberg index in the week post-decision, reversing earlier losses for the year. Despite the 25-basis-point cut, the market is split: swaps signal two more cuts by year’s end, but there’s little agreement over what will happen in 2026 title2 [ 2 ].

The Fed’s move highlights the intersection of monetary policy and political forces. Powell’s careful approach has helped reinforce the Fed’s credibility, but Trump’s advocacy for faster rate reductions underscores ongoing friction. Experts warn that without more evidence of easing inflation or a sharper jobs downturn, the Fed is likely to remain cautious. “The key unresolved issue this year is the Fed’s independence,” said Amberdata’s Greg Magadini, stressing that any hasty policy easing or a leadership shakeup could bring renewed market volatility title5 [ 6 ].