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The long-awaited move is here. After months of economic debate and growing attacks from US President Donald Trump, the Federal Reserve is poised to cut interest rates this week.

The Federal Reserve is widely expected to announce it is cutting the benchmark for its key lending rate by 0.25 percentage points. That will put it in a range of 4% to 4.25%—the smallest figure since late 2022.

The move—the bank's first rate cut since last December—is anticipated to initiate a series of additional reductions in the coming months, which is likely to reduce loan expenses nationwide.

A Warning Regarding the Economic Outlook

But they carry a warning about the economy, reflecting growing agreement at the Fed that a stalling job market needs a boost in the form of reduced borrowing costs.

Nor are they likely to satisfy the commander-in-chief, who has demanded far deeper cuts.

Reasons Behind the Reduction Was Anticipated

To a large extent, it is no surprise that the Fed, which determines interest rate policy independent of the White House, is cutting.

The inflation that affected the post-pandemic economy and prompted the bank to raise borrowing costs in 2022 has come down significantly.

In the UK, Europe, the northern neighbor and elsewhere, central banks have already responded with lower interest levels, while the Fed's own policymakers have stated for months that they expected to lower interest rates by at least half a percentage point this year.

At the Fed's last meeting, two members of the committee even backed a cut.

They were outvoted, as other members remained worried that the administration’s fiscal measures, including reduced taxes, trade duties and large-scale arrests of foreign laborers, might lead to price growth to flare back up.

And it's true, the US in recent months has seen inflation tick higher. Consumer costs increased nearly 3% over the 12 months to late summer, the fastest pace since January, and still above the Fed's 2% target.

Job Market Softness Eclipses Inflation Worries

However, lately, those apprehensions have been overshadowed by softness in the labour market. The US reported modest employment growth in August and July and an outright loss in June—the first such decline since the pandemic year.

It really comes down to the developments in the employment arena—the deterioration observed over the past few months.

The Fed knows that when the job sector turns, it can change rapidly, so they're wanting to make sure they're not slowing down the economy at the same time the labour market has begun to soften.

External Influence and Central Bank Autonomy

Though Trump has dismissed concerns about a softening economy, the rate cut should not be unwelcome to him—for a long time, he has blasting the Fed's hesitance to reduce borrowing costs, which he claims should be as low as 1%.

On social media, he has called Federal Reserve head Jerome Powell incompetent, charging him of restraining the economic growth by keeping borrowing costs too high for too long.

Trump's pressure is not only rhetorical. He acted promptly to appoint the chairman of his economic advisory team on the Fed ahead of this week's meeting after a short-term vacancy opened up recently.

The White House has also threatened Powell with firing and probe and is engaged in a legal battle over its effort to fire another member of the board.

Critics Caution Over Fed Independence

According to analysts, Trump's moves amount to an assault on the Fed's independence that is unprecedented in recent history.

Regardless of tension in the air at this monthly gathering, analysts say they believe the Fed's choice to cut would have come regardless of his efforts.

The president's policies are definitely generating the economic activity that is pressuring the Fed.

The president's jawboning of the Fed to reduce borrowing costs in my view has had zero impact whatsoever.