Trump’s inside man fails to get the job done

2 hours ago 1

Opinion

September 18, 2025 — 11.56am

Fireworks were expected from this week’s Federal Reserve Board meeting. Instead, there was a dampish squib.

After the last-minute rush to install a Trump senior economic adviser, Stephen Miran, on the board and a failed attempt to oust another governor, Lisa Cook, there were expectations that the meeting would be a fractious affair, with Miran lining up with two other Trump-appointed governors to try to deliver a larger-than-expected interest rate cut.

Stephen Miran was the lone dissenting voice on the Federal Open Market Committee.

Instead, Miran found himself a lone dissenter, with the other Trump appointees, Christopher Waller and Michelle Bowman, joining the rest of the committee in voting for the 25 basis point cut that the markets expected.

Waller and Bowman created a bit of history in July when they disagreed with the majority decision to hold rates steady. It was the first time since 1993 that two governors had dissented.

Against expectations, and resisting Donald Trump’s intimidatory tactics, Fed chair Jerome Powell had a near-unanimous consensus at the meeting. Miran was the only member to vote against the 25 basis points, wanting a 50 basis point cut instead. Trump, of course, has repeatedly called for a 3 percentage point cut.

Miran was installed as a governor on Tuesday after the Senate rushed to confirm his nomination in time for the meeting. Cook retained her position, at least for the moment, when an appeals court, also on Tuesday, rejected the Trump administration’s attempt to sack her ahead of the meeting.

Waller, who is on Trump’s short list to replace Powell as the Fed’s chair when Powell’s term ends in May next year, and Bowman were expected to join Miran in arguing for a cut of at least 50 basis points. By siding with Powell and the majority, Waller may have disqualified himself from that contest. Trump won’t be happy.

Powell dodged most questions about what transpired inside the meeting and what Miran might have done to try to influence its outcome, noting that there were a dozen individuals (the 12 voting members of the 19-member FOMC) who vote on monetary policy.

“The only way for any voter to really move things around is to be incredibly persuasive, and the only way to do that in the context in which we work is to make really strong arguments based on the data and one’s understanding of the economy. That’s all that really matters and that’s how it’s going to work,” he said.

The implication within those comments – and his failure to convince Waller and Bowman or anyone else to back him – is that Miran wasn’t able to make a persuasive case for a larger rate cut.

Christopher Waller is one of the favourites to take over as Fed chair next year. He may have just hurt his chances.

The administration’s argument that rates should be lowered to reduce the cost of servicing the government’s burgeoning debt and to boost growth wouldn’t cut it with most of the FOMC’s members, whose dual mandate is to ensure price stability and maximise employment.

Along with the 25 basis point cut, the Fed released its famous “dot plot” of individual FOMC members’ economic projections.

That showed nine of the 19 expect there to be two more 25 basis point rate cuts this year and one other expects three. Two expect only one and seven expect none.

There was one outlier – Miran, presumably – who pencilled in a series of “jumbo” 50 basis point cuts that, if effected, would reduce the Fed’s target for its federal funds rate from its newly established 4 to 4.25 per cent range to less than 3 per cent by the end of the year.

Powell, who said the committee didn’t seriously consider a larger rate cut, described the decision to shave 25 basis points off the federal funds rate as a “risk management cut,” prompted by growing signs of weakness in the labour market.

“Labour demand has softened and the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant,” he said.

The Fed is trying to balance two big risks. One is the jobs market, where both the demand for and supply of labour have been shrinking and the unemployment rate is edging up. The other is an inflation rate that is also creeping up, thanks to Trump’s trade wars.

“Our obligation is to ensure that a one-time increase in the price level (as a result of Trump’s tariffs) does not become an ongoing inflation problem,” Powell said.

“It’s a difficult situation because we have risks that are both affecting the labour market and inflation. Those are our two goals (maximising employment and ensuring price stability), and so we have to balance those two. When they’re both at risk, we have to balance them and that’s really what we are trying to do,” he said.

Interestingly, the median projection of the FOMC members is for only one 25 basis point cut next year and one other in 2027.

They don’t see the US inflation rate being reduced to their 2 per cent target until 2028, although the levels of uncertainty over both jobs and inflation are such that expectations will inevitably change from meeting to meeting as more data becomes available to an institution that prides itself on being data-driven.

That reliance on data could change if Trump succeeds in remaking the Fed’s board. The administration has said it will take its effort to sack Cook to the Supreme Court. It has Miran inside the Fed and will have an opportunity to appoint a new chair next year.

Chair Jerome Powell is doing his best to keep the Fed on track despite constant pressure from the Trump administration.

If Waller and Bowman can be convinced to join a coup (although their votes this week suggest they aren’t as malleable as Trump and Miran might have anticipated), Trump could achieve a majority of the governors and use that majority to block the appointments of regional bank presidents to the FOMC. He could remake the Fed and (he and others in the administration believe) dictate its rate decisions.

Unless and until that happens, however, the Fed can be expected to follow a cautious path, given that the effects of Trump’s tariffs, most of which have only been in place since early last month, are only just starting to show up in the inflation data and can be expected to have a more pronounced effect as each month goes by.

Market economists are already referring to the current settings in the economy as “stagflation-lite,” with both the unemployment rate and the inflation rate edging up at the same time.

The Fed will be concerned that what could be a one-off or transitory increase in the inflation rate because of the tariffs might become entrenched in expectations of inflation, which could force it to hike rates even as the economy slows and the unemployment rate rises.

“Our obligation is to ensure that a one-time increase in the price level (as a result of Trump’s tariffs) does not become an ongoing inflation problem.”

Fed chair Jerome Powell

It would also be aware that two layers of the US court system have now found that Trump’s core “reciprocal” tariffs – the tariffs he has imposed on every country the US trades with, with some duty rates as high as 50 per cent – are illegal.

The Supreme Court will hear the administration’s appeal in November. While the administration is collecting the tariff revenue from US companies, it is conceivable that the tariffs will be forcibly removed by the end of the year and the administration forced to hand back the billions of dollars it has collected from what’s effectively a massive new (and highly regressive) tax on its own companies and consumers.

That would change the outlook for inflation and rates, although there are more obviously legal ways to reimpose the tariffs, albeit more complicated, more time-consuming and with far less presidential discretion.

It’s a difficult, thankless and risky time to be a Fed governor when Trump is in the White House, even if Powell is doing his best to project a “business as usual” front for the Fed and its deliberations.

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