September Newsletter: $1.8 Billion Powerball Prize, Trump’s Federal Reserve, and More

On September 17, the Federal Reserve cut its federal funds target rate by 0.25% to a range of 4.00-4.25% from 4.25-4.50%. This was its first rate cut since December 2024, a marked a shift from inflationary concerns toward concerns of weakening labor-market conditions. Fed Chair Jerome Powell described the decision as a “risk management” move, a signal that downside risks are rising (slowing employment, economic slowdown) as inflation remains above target but apparently contained despite tariff pressures.

The Fed also projected further rate cuts this year—though not without divided opinions. One notable dissent came from Stephen Miran, recently confirmed to the Fed Board, who pushed for a larger .050% cut. Miran, a White House economist, was confirmed by the Senate (48-47) just days before this rate cut. He retains ties to the White House, including as former Chair of the Council of Economic Advisers, raising concerns about overlap between the Fed’s decision makers and the administration.

As the Wall Street Journal’s editorial board framed it, “It’s Trump’s Federal Reserve now.” The cut is being widely interpreted not merely as a response to slowing growth or evolving inflation dynamics, but as a signal of how much political pressure the central bank has been under—and how that pressure is reshaping its independence.

While President Trump’s pressure on the Fed has been unusually public, frequent, and personal, it’s nothing new.  In 1965, LBJ hauled the Fed chair to his ranch and physically shoved him while demanding easier policy during Vietnam in one of the most dramatic clashes with the Fed on record. Oval Office tapes captured Nixon repeatedly pressuring the Fed chair for pre-election stimulus.  

Other Presidents have groused, albeit in more muted terms, and usually after the fact. George H. W. Bush blamed Greenspan for his 1992 loss. Fed chair Paul Volcker’s success in leading the country out of stagflation in the early 80’s cultivated an aura of near-sacrosanct independence for the Fed. Arguably, this 30+ year norm has now been broken.

As a result, markets may start to view rate decisions as more politicized, which could affect inflation expectations, credibility, and perhaps the decisions the Fed makes going forward. For now, though, the Fed seems to be trying to walk a tightrope: responding to economic risk while maintaining its official posture of policy guided by data—not politics.