Trump says "Fed will make a big cut" amid pressure…market expects a baby cut

Trump demanded a 0.5 percentage point cut but

Inflationary pressures likely limit it to a 0.25 percentage point cut

U.S. President Donald Trump effectively demanded a "big cut" (a 0.5 percentage point cut in the policy rate) from the U.S. central bank (the Federal Reserve). Concerns are rising that political pressure on the Fed's monetary policy decisions is increasing.

According to Bloomberg on the 14th (local time), President Trump told reporters that "I expect a big cut" and that "now is the perfect time to lower rates." The Fed will hold a two-day Federal Open Market Committee (FOMC) meeting starting on the 16th and will decide on a rate cut on the 17th.

Given the recent deterioration in the labor market, markets expect the Fed to move for a 0.25 percentage point cut. Following July, job numbers fell more than expected last month as well, marking the lowest level since October of last year. However, the inflation rate still exceeds the Fed's 2% target, and high tariffs could increase inflationary pressure, so many see the likelihood of a big cut as low. According to the Chicago Mercantile Exchange (CME) FedWatch, interest rate futures market participants price the probability of a 0.25 percentage point cut at 96.2% for this month's FOMC, and the probability of a 0.5 percentage point cut at 3.8%.

There are also concerns that Trump's pressure could weigh on discussions among FOMC members. Earlier, President Trump urged the Fed to "lower rates to around 1% annually," and suggested the possibility of removing Chair Jerome Powell, who has been reluctant to cut rates. He has increased pressure on the Fed, notifying Fed Governor Lisa Cook—who has 13 years left in her term—of removal over allegations related to mortgage lending, among other moves.

Bloomberg reported that the Fed faces a "triple threat" of a slowing labor market, persistent inflation, and President Trump's unprecedented demand for rate cuts. As a result, opinions within the Fed could split between those opposing rate cuts and those calling for larger cuts, making it likely that some members will vote against cuts. Bloomberg added, "There are forecasts that three or more members could vote against this time, the first such occurrence since 2019."

Reporter Im Da-yeon allopen@hankyung.com