info@bazaartoday.com
The Fed at a Crossroads: Rate Cuts, Economic Signals, and Political Pressure
As the U.S. economy enters the final stretch of 2025, the Federal Reserve faces mounting pressure to cut interest rates. With inflation cooling, unemployment ticking upward, and political tensions rising—particularly between former President Donald Trump and Fed Chair Jerome Powell—the central bank’s next moves could reshape the economic landscape.
September Rate Cut: Likely but Not Assured
The Fed is widely expected to cut rates by 25 basis points at its September 17 meeting. Futures markets place the odds at over 83%, with some analysts predicting a second cut in December. Powell’s recent remarks at Jackson Hole cited “downside risks to employment” as a key concern, signaling a shift from inflation-focused policy to labor market support.
However, Morgan Stanley cautions that strong GDP growth and stable financial conditions may reduce the urgency for Economic Trends (2020–Mid 2025)
Let’s break down the key indicators driving the Fed’s decision-making:cuts, putting the odds closer to 50-50.
Inflation Rate (%)
Year | Inflation Rate (%)
----------|---------------------
2020 | 1.2
2021 | 4.7
2022 | 8.0
2023 | 6.4
2024 | 3.8
Mid-2025 | 2.7
Inflation peaked in 2022 due to pandemic stimulus and supply chain shocks. It has since cooled, nearing the Fed’s 2% target.
Real GDP Growth (%)
Year | Real GDP Growth (%)
----------|---------------------
2020 | -3.4
2021 | 5.7
2022 | 2.1
2023 | 1.6
2024 | 2.0
Q2 2025 | 3.0
After a brief contraction in Q1 2025 (-0.5%), GDP rebounded in Q2, driven by consumer spending and reduced imports
Consumer Spending (PCE Growth %)
Year | PCE Growth (%)
----------|---------------------
2020 | -2.8
2021 | 6.5
2022 | 4.2
2023 | 2.9
2024 | 2.5
Mid-2025 | 0.3 (June)
Spending has slowed but remains positive, supported by rising wages and easing inflation
Mortgage Rates (30-Year Fixed %)
Year | Avg Rate (%)
----------|---------------------
2020 | 3.1
2021 | 3.0
2022 | 5.5
2023 | 6.8
2024 | 6.6
Aug 2025 | 6.58
Despite Fed rate cuts in late 2024, mortgage rates remain elevated due to rising Treasury yields
Unemployment Rate (%)
Year | Unemployment (%)
----------|---------------------
2020 | 8.1
2021 | 5.4
2022 | 3.7
2023 | 3.5
2024 | 4.0
Mid-2025 | 4.2
Job growth has slowed significantly in recent months, with July 2025 adding just 73,000 jobs
Trump vs. Powell: A Brewing Storm
President Donald Trump has publicly criticized Powell for resisting aggressive rate cuts, especially as tariffs push inflation higher. Trump’s immigration and trade policies have complicated the Fed’s dual mandate of price stability and full employment.
Powell, meanwhile, has emphasized caution, citing uncertainty around inflation and labor market dynamics. The Fed’s independence has come under scrutiny, with some economists warning of political interference in monetary policy.
What’s Next?
Short-Term Outlook:
- September 2025: Likely 25 bps cut.
- December 2025: Possible second cut.
- Mortgage rates: May dip slightly but remain above 6%.
Long-Term Risks:
- If inflation rebounds due to tariffs, the Fed may pause cuts.
- Rising unemployment could force deeper easing.
- Political pressure may erode Fed credibility, especially if Trump regains influence.
The Fed’s balancing act between inflation and employment is more precarious than ever. With economic indicators sending mixed signals and political tensions rising, the September rate cut may be just the beginning of a turbulent monetary policy cycle.
@ Bazaartoday
By Hamid Porasl
Aug 30th, 2025