As the Federal Reserve prepared to unveil its final interest rate decision of 2025, the air in Washington was thick with tension, speculation, and more than a little political theater. Rarely has the central bank faced such a combustible mix of economic uncertainty and overt political pressure, with President Trump intensifying his campaign to shake up the Fed’s leadership and steer monetary policy in a direction more favorable to his administration’s goals.
The drama came to a head on December 10, 2025, as the Federal Open Market Committee (FOMC) – the Fed’s policy-setting panel – convened amid near-unprecedented division among its twelve voting members. According to El País, this was the central bank’s biggest internal split in decades, with some officials pushing for aggressive interest rate cuts to spur a slowing economy, while others warned that such moves could entrench stubbornly high inflation.
President Trump, never one to shy from confrontation, had been ramping up his attacks on Fed Chair Jerome Powell for months. Trump’s dissatisfaction with Powell’s measured approach was no secret. He has “insulted, harassed, and denigrated” Powell, as El País reported, and made clear his desire to replace him with a more compliant figure—specifically, Kevin Hassett, his White House economic adviser. The president’s impatience was on full display during a December 9 speech in Pennsylvania, where he alleged, without evidence, that former President Biden improperly installed four members of the Fed’s board. Trump even directed Treasury Secretary Scott Bessent to investigate, speculating that Biden’s use of an autopen to sign their commissions might have been invalid. “Would you check that, Scott, OK? Because I’m hearing that the autopen could have signed maybe all four, but maybe a couple of them. We’ll take two,” Trump said, as The New York Times recounted.
The timing of Trump’s comments was hardly coincidental. The Fed was just beginning its two-day rate-setting meeting, with a decision due the next day. For months, the Fed had kept rates steady, only beginning to lower them in September 2025. Yet Trump, unsatisfied with what he saw as a cautious pace, continued to publicly browbeat Powell and other Fed officials. He called Powell a “bad head of the Fed” and openly mused about firing him, although Powell has repeatedly asserted both his independence and the fact that the president lacks the legal authority to remove him before his term ends in May 2026.
Trump’s pressure campaign has not been limited to rhetoric. Last summer, he appointed Stephen Miran, his chief economist, to the Fed’s board. Miran quickly aligned with the so-called “doves,” voting for more aggressive 0.5 percentage point cuts at the two most recent FOMC meetings. On the other side, Kansas City Fed President Jeff Schmid has stood firm against further cuts, warning that they could deepen inflationary pressures rather than help the labor market. Such open disagreements have left Chair Powell with the unenviable task of forging consensus among a group more divided than at any point in recent memory.
The economic backdrop for this high-stakes debate is anything but straightforward. The U.S. labor market, once the pride of the post-pandemic recovery, has shown signs of fatigue. The September 2025 employment report, delayed more than two months due to a 42-day government shutdown, finally revealed an increase of 119,000 jobs—a number that, while positive, was the weakest September since the Covid pandemic. The unemployment rate ticked up to 4.4%, still low by historical standards but trending upward and fueling concerns about the resilience of the recovery. Meanwhile, the Consumer Price Index showed prices rising by up to 3% in September, keeping inflation well above the Fed’s traditional 2% target. As El País noted, the shutdown not only delayed the release of key data but also left policymakers trying to make sense of a murky economic picture, relying on incomplete and sometimes conflicting signals.
Trump, keenly aware of the political risks posed by rising living costs and a softening job market, has taken steps to ease inflationary pressures. He approved tariff reductions on a range of household staples, including coffee, beef, fruits, and vegetables, aiming to lower prices for American families. But the president’s broader trade and immigration policies have complicated the Fed’s calculus. According to Apollo chief economist Torsten Slock, “The labor market is showing slower job growth, but this slowdown is not due to lower demand for labor, but rather to lower labor supply due to immigration restrictions.”
The result is a central bank caught between conflicting mandates: price stability and maximum employment. As The Washington Post reported, the minutes from the Fed’s October meeting revealed a committee nearly evenly divided between those who saw higher inflation as a temporary issue and favored cutting rates to stave off recession, and those who feared that further cuts would only fuel inflation driven by Trump’s tariffs. Ryan Sweet, global chief economist at Oxford Economics, summed up the challenge: “The challenge facing the Fed next year is the potential jobless expansion, when GDP increases but employment gains are modest, at best. This leaves the economy vulnerable to shocks because the labor market is the main firewall against a recession.”
Market participants, for their part, appeared convinced that another rate cut was in the cards. The CME Group’s FedWatch indicator put the odds at nearly 90% for a cut at the December 10 meeting. Analysts expected at least two more reductions in 2026, and the market was already pricing in a third consecutive cut since September, which would bring the federal funds rate down to a range between 3.5% and 3.75%.
Despite the heated rhetoric and political maneuvering, Powell and his fellow governors have done little to push back against market expectations. “Chair Powell and the other FOMC governors have done nothing to push back meaningfully against the near-90% chance of a rate cut discounted in markets, suggesting the hawkish regional Fed presidents—who have made clear their preference for keeping rates on hold—remain a minority,” wrote Samuel Tombs and Oliver Allen of Pantheon Macroeconomics, as cited in The Washington Post.
As the Fed’s decision loomed, the stakes could hardly have been higher. The outcome would not only shape the trajectory of the U.S. economy heading into a pivotal election year but also set the tone for the central bank’s independence in the face of mounting political pressure. With Trump poised to name a successor to Powell—potentially as early as March 2026—the next Fed chair will inherit not just a divided institution, but also a public wary of both inflation and job losses, and a White House determined to leave its mark on monetary policy.
In the end, the Fed’s December meeting was about far more than interest rates. It was a test of the central bank’s resilience, its independence, and its ability to navigate the treacherous waters of politics and economics in a nation still searching for solid ground.
