Federal Reserve Cuts Interest Rate Again Amid Political Pressure and Ongoing Shutdown

The Federal Reserve has trimmed its benchmark interest rate by a quarter of a percentage point, marking its second reduction this year as the central bank confronts political pressure from President Donald Trump and uncertainty surrounding the ongoing government shutdown.

The Federal Open Market Committee (FOMC) voted 10–2 in favor of lowering the federal funds rate to a new target range of 3.75% to 4%, signaling a cautious approach to slowing economic momentum and inconsistent inflation data.

While investors had largely anticipated the move, the tone of the Fed’s statement and Chair Jerome Powell’s subsequent comments suggested that officials are not inclined toward an aggressive series of future rate cuts.

“A further reduction of the policy rate in December is not a foregone conclusion,” Powell told reporters during a press conference following the announcement. “We remain focused on maintaining maximum employment, bringing inflation back to our 2% target, and ensuring that long-term inflation expectations remain anchored.”

Economic Backdrop and Shutdown Concerns

Powell acknowledged that the ongoing federal government shutdown, now entering its third week, could temporarily slow the economy by disrupting government spending and delaying data releases. However, he expressed confidence that the impact would be short-lived once the shutdown ends.

“The shutdown will weigh on near-term economic activity,” Powell said. “But these effects should largely reverse when government operations resume.”

The central bank’s latest decision underscores a balancing act: supporting growth amid weakening job creation and softer investment, while avoiding overly stimulative measures that might reignite inflationary pressures.

Trump’s Pressure Campaign

The rate cut follows weeks of open criticism from President Trump, who has repeatedly attacked Powell for not cutting rates more aggressively. Trump, who appointed Powell to lead the Fed in 2018 and reappointed him for a second term in 2022, has accused the chair of being too slow to respond to changing economic conditions.

On his social media platform, Trump recently derided the Fed chair as “Jerome ‘Too Late’ Powell”, insisting that steeper cuts were necessary to fuel growth.

“Jerome ‘Too Late’ Powell must lower the rate NOW,” Trump posted. “He’s costing America jobs and investment with his incompetence.”

Powell did not directly reference the president’s attacks but offered a subtle defense of the Fed’s independence, emphasizing that its decisions are “based on data, not political pressure.”

Divisions Inside the Fed

The FOMC’s vote revealed clear differences among policymakers. Fed Governor Stephen Miran, one of Trump’s recent nominees, dissented in favor of a larger half-point cut, arguing that the economy needed a stronger boost to offset slowing consumer demand and declining business investment.

Conversely, Kansas City Fed President Jeffrey Schmid opposed any cut, warning that continued easing could risk higher inflation and leave the central bank with fewer tools to respond to future downturns.

Market Reaction

Financial markets reacted with mixed signals. The Dow Jones Industrial Average initially climbed about 200 points following the announcement but later pared gains as Powell’s remarks suggested caution about additional cuts. Bond yields declined modestly, while the U.S. dollar slipped against major global currencies.

Analysts said the Fed’s decision offers some relief to credit markets and could ease borrowing conditions for consumers and businesses, though uncertainty over the shutdown and inflation trends continues to cloud the outlook.

“This is a small but strategic move,” said one senior economist. “The Fed is signaling flexibility but not panic. They’re buying time to see how the shutdown and inflation evolve.”

Political and Policy Implications

Inside the White House, administration officials were quick to claim credit for the rate reduction. One senior aide said Trump’s vocal campaign had forced the Fed to act.

“The president has been fighting for lower rates from the beginning,” the aide said. “He knows that cheaper credit supports jobs and growth — and now the Fed is finally listening.”

Still, Powell maintained that the committee’s decisions would continue to rely on incoming data and a broad economic assessment rather than political demands.

“We will continue to make decisions meeting by meeting,” Powell said. “Every choice is guided by the data and our commitment to stability.”

Looking Ahead

With Powell’s term as chair set to expire in May 2026, Trump has already signaled his intention to select a successor who more closely aligns with his economic agenda, raising questions about the future independence of the central bank.

For now, economists expect the Fed to hold rates steady through the remainder of the year unless new data show a significant economic slowdown. Many warn that if inflation remains stubbornly above target, the Fed may face a tough decision — either tighten policy again or risk losing credibility over its inflation-fighting mandate.

In the meantime, Powell appears determined to maintain calm amid competing pressures from markets, the White House, and Congress. As he concluded his press briefing, the chair summarized the Fed’s cautious stance:

“Our approach is simple — remain patient, stay data-driven, and act in the best interest of the U.S. economy.”