Federal Reserve Cuts Interest Rates Again
The Federal Reserve has reduced interest rates for the third consecutive time on Wednesday, marking a pivotal year for the central bank. This move comes as President Donald Trump advocates for more significant rate reductions and attempts to enhance his influence over the institution.
Following a two-day meeting, the Federal Open Market Committee (FOMC) decided to lower the benchmark federal funds rate by a quarter of a percentage point, adjusting it to a target range of 3.50% to 3.75%. This decision was made amid noticeable divisions within the committee about future policy directions. Some members expressed concerns that a softening labor market could worsen without additional easing, while others warned that further cuts might fuel inflation.
This decision is also occurring against the backdrop of an unprecedented data outage triggered by a lengthy federal government shutdown. Consequently, significant economic indicators, such as the November employment report, won’t be available until December 16th, and the October consumer price index was entirely canceled. Nevertheless, alternative indicators suggest that the labor market is cooling off.
The upcoming year is expected to hold similar significance, especially with Federal Reserve Chairman Jerome Powell’s term ending in May. This situation creates a substantial opportunity for President Trump to influence the central bank’s direction. There’s talk about Mr. Trump potentially announcing Powell’s successor in early 2026, and he has indicated a preference for someone inclined to lower interest rates rapidly.
In a recent speech, President Trump criticized the Federal Reserve, stating, “The Fed is stupid. We’re going to make changes.” These comments were made during an address in Pennsylvania focused on economic matters.
Currently, gambling markets see National Economic Council Chairman Kevin Hassett—who supports Trump’s push for rate cuts—as a leading candidate to replace Powell.
In his address, Trump also questioned the legitimacy of the four Fed directors appointed by former President Joe Biden, suggesting that Biden might have used an autopen for their appointments. Recently, the Trump administration has been working to overturn actions taken under Biden’s “notoriously unauthorized” autopen.
Back in August, Trump attempted to dismiss Federal Reserve Governor Lisa Cook due to allegations related to mortgage fraud. The Supreme Court ruled that, following their orders, Cook could remain on the board at least until January when justices plan to deliberate on the administration’s attempts to remove her.
The Fed’s board includes four governors appointed by Biden, alongside Christopher Waller and Michelle Bowman, who were appointed during Trump’s first term, and Stephen Milan, who was appointed to fill a vacancy in September.
The Fed is also in the process of reappointing 12 regional reserve bank presidents, five of whom will vote on interest rate decisions as FOMC members every year. While each regional board selects its chairperson, that choice requires approval from the seven-member board.
Although the administration does not directly influence the reappointment process, Treasury Secretary Scott Bessent mentioned on December 3 that he intends to advocate for new requirements. He suggests that local bank presidents should reside in their districts for at least three years prior to taking office. Bessent argued that regional Feds were established to incorporate local perspectives into interest rate decisions and to “break the New York hold.”
