6: Should the Federal Reserve Cut Interest Rates?

The Federal Reserve’s dual mandate — keeping prices stable and achieving maximum employment — is being tested. At its Sept. 17 meeting, the central bank must decide whether or not to cut interest rates, a decision complicated by persistent inflation, a cooling labor market, and an escalating pressure campaign waged by the Donald Trump administration. Trump has pushed for steep rate cuts, repeatedly called for Fed chair Jerome Powell to step down, and more recently moved to fire Fed governor Lisa Cook in a broader effort to gain leverage over the independent agency. John Diamond lays out the political and monetary challenges facing the Fed and explains what really matters for the country’s long-term economic health. This conversation was recorded on Aug. 27, 2025. Clips used in this episode: “Trump calls Fed chair Powell ‘stupid person,’” Reuters, June 18, 2025. “New Fed statement about Trump plan to fire Lisa Cook,” CBS News, August 26, 2025. “Fed Chair Powell: Labor market is in a ‘curious kind of balance,’” CNBC, August 22, 2025. Follow John Diamond on X (@jw_diamond) and LinkedIn. You can follow @BakerInstitute on X, Instagram, LinkedIn, and YouTube. Learn more about our data-driven, nonpartisan policy research and analysis at bakerinstitute.org.