Why the US Federal Reserve Is Expected to Cut Interest Rates

The US Federal Reserve is widely expected to lower interest rates this week for the first time since December, in a move aimed at easing borrowing costs and supporting a weakening job market.

The central bank is set to announce a 0.25 percentage point cut, bringing its benchmark rate to a range of 4%–4.25%, the lowest level since late 2022. Analysts expect the reduction to mark the start of a series of cuts in the months ahead.

While the move comes after months of pressure from President Donald Trump, who has demanded rates as low as 1%, Fed officials have signaled the decision reflects broader economic concerns, particularly a deteriorating labour market. US job growth stalled over the summer, with outright losses in June for the first time since 2020.

Inflation, which spiked in 2022, has cooled significantly but remains above the Fed’s 2% target. Consumer prices rose 2.9% in August, the fastest pace since January. That, along with Trump’s economic policies—tax cuts, tariffs, and migrant worker crackdowns—had previously made some policymakers wary of loosening policy too quickly.

Still, economists say the weakening labour market is now driving the Fed’s decision. “The Fed knows that when the labour market turns, it turns very quickly,” said Sarah House, senior economist at Wells Fargo, which expects rates to fall by 0.75 percentage points by year-end.

Trump has repeatedly attacked Fed Chair Jerome Powell, calling him “a real dummy” and accusing him of holding back growth. His administration recently installed adviser Stephen Miran on the Fed board and has threatened Powell with removal, sparking concerns about the central bank’s independence.

Despite the political pressure, analysts argue the Fed would have acted regardless. “The president’s jawboning of the Fed to lower rates I think has had zero impact whatsoever,” said Art Hogan, chief market strategist at B. Riley Wealth.