After a long pause, the Federal Reserve is finally ready to make a move. On Wednesday, policymakers are expected to vote to lower interest rates a quarter of a percentage point, the first cut since December.
The decision is a turning point for the central bank, whose officials have been locked in an intense debate about the right time to provide some relief to borrowers when the economy has been sending mixed signals.
Inflation picked back up over the summer and appears poised to continue accelerating this year as a result of President Trump’s tariffs. The labor market, while still solid, has started to flash more warning signs.
The Fed is having to balance these competing risks while contending with a relentless pressure campaign from Mr. Trump and his allies to slash borrowing costs. These dynamics have made for a highly unusual Fed meeting. Minutes before the Fed’s two-day gathering began on Tuesday, Stephen Miran, Mr. Trump’s pick to join the Fed, was sworn in. Another governor, Lisa Cook, spent the day before the meeting awaiting a ruling from a federal appeals court that would determine whether she could attend this week’s meeting. The court ruled in her favor.
On Wednesday, the Fed will release a new policy statement alongside its rate decision at 2 p.m. in Washington. It will also release new projections compiling officials’ views on interest rates and the economic outlook. Jerome H. Powell, the Fed chair, will hold a news conference at 2:30 p.m.
Here is what to watch for:
How Many Dissents?
In July, the last time the Fed met to set interest rates, two members of its powerful Board of Governors voted against the decision to keep interest rates unchanged. Instead, Michelle W. Bowman and Christopher J. Waller voted for a quarter-point cut. That was the first time since 1993 that two officials of their stature officially dissented.
September’s decision is also likely to face some opposition. Since the July meeting, the Fed’s top ranks have changed. Adriana Kugler abruptly resigned in August and was replaced by Mr. Miran, who most recently served as one of Mr. Trump’s top economic advisers.
Mr. Miran is expected to support a larger cut than what his new colleagues are prepared to deliver.
The Fed’s interest rate decisions are decided by all seven members of the board as well as a rotating group of five presidents from the regional reserve banks.
The question is whether Mr. Miran will be joined by either Ms. Bowman or Mr. Waller, or both, in voting for a bigger reduction. One reason to think Mr. Waller will not dissent again is that he appeared to downplay the need for a larger cut in remarks made this month.
It is also possible that at least one policymaker votes against a cut altogether, in favor of keeping interest rates steady. Some officials — like Jeffrey R. Schmid, the president of the Kansas City Fed — have appeared skeptical of the need for lower interest rates at a time when inflationary pressures are intensifying again. But it is not clear if their opposition is significant enough to cast an official dissent.
Consecutive Cuts?
With a September cut well-telegraphed, perhaps the most important part of the September meeting will come in the form of the central bank’s new “dot plot.”
Released quarterly, it tracks what officials expect will happen with interest rates not only for the rest of the year, but also over a longer horizon. The dot plot aggregates forecasts from all 19 Fed officials, producing a median estimate that is regularly quoted as the clearest read of the central bank’s thinking on its monetary policy settings.
The last time the dot plot was updated in June, officials broadly expected two interest rate cuts this year, or a half a percentage point reduction.
Economists are split as to whether the dot plot will show just one more cut this year, in line with June’s forecast, or if officials will shift to signaling a cut at each of the two remaining meetings this year.
The latter scenario would suggest the Fed is chiefly focused on the labor market and less worried about inflation.
Powell Under Pressure
Mr. Powell will inevitably face questions about Mr. Trump’s pressure campaign given the ferocity of attacks in recent weeks. In addition to tapping Mr. Miran to join the Fed since the July meeting, the president has also attempted to oust Ms. Cook, a governor, over allegations that she committed mortgage fraud.
The move, which has no historical precedent, has kicked off an intense legal battle that will have far-reaching consequences for the institution and its ability to set interest rates free from political meddling. Late on Monday, a panel of judges ruled 2-1 that Ms. Cook could stay on as a governor while her lawsuit contesting her firing is being litigated. The White House is expected to soon appeal the ruling to the Supreme Court.
The Fed has been careful about how it has handled Mr. Trump’s attacks, a cautious approach that is now being scrutinized as the institution’s independence comes under its most extreme threat in decades.
With regard to Ms. Cook’s case, the Fed has said it would abide by any court decision.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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