The Federal Reserve’s September meeting may be remembered less for the modest quarter-point cut it delivered and more for what it revealed about the state of the institution itself. In the space of just a few days, we saw a rushed confirmation of a new governor, a highly unusual dissent calling for a much larger rate reduction, and the culmination of a weeks-long White House effort to remove a sitting member of the Board. Taken together, these events suggest the Fed is no longer insulated from political pressure in the way investors once assumed.
Stephen Miran, a Trump-backed economist, was confirmed by the Senate on September 15 and sworn in the very next morning—just hours before the Fed convened. At his first meeting, he immediately dissented, pushing for a 50-basis-point cut instead of the 25-point move supported by all other voters. More tellingly, Miran sketched a path for another 125 points of cuts by year-end, which would bring the policy rate well below 3%. That is not a minor adjustment—it would mark one of the most aggressive easing cycles in modern history, undertaken at a time when core inflation remains close to 3% and unemployment, while rising, is still only about 4.3%.
To understand why this matters, it helps to remember how the Fed typically frames policy. Economists often use rules of thumb such as the Taylor Rule, which balances inflation against the level of slack in the economy. By those measures, today’s conditions call for a policy rate roughly around neutral—somewhere close to 3.5–4%. The Cleveland Fed’s own model places the neutral nominal funds rate at about 3.7%. Cutting meaningfully below that level while inflation remains sticky would represent a shift from mildly restrictive policy to overt stimulus. And while this move may be supported by arguments about a weak labor market or an outdated approach by the Fed and their terrible track record, it is at least partially also justified by politics.
The political context is important. Trump first announced plans to remove Governor Lisa Cook in late August, alleging misconduct from before her appointment. On September 9, a federal judge blocked that dismissal, ruling that the case did not meet the “for cause” threshold required by law. The administration appealed, seeking an emergency order that would have prevented Cook from voting at the September meeting. The appeals court refused, allowing her to remain. While Cook ultimately kept her seat, the episode underscores just how far the White House was willing to go to influence the Fed’s composition ahead of a critical policy decision.
For decades, markets treated the Fed as an independent arbiter, occasionally swayed by politics but never truly captured. That assumption looks less secure today. International observers have taken notice—Bundesbank President Joachim Nagel warned this month that U.S. political interference in the central bank threatens financial stability and could raise long-term borrowing costs as investors demand compensation for lost credibility. The concern is straightforward: if the Fed is pressured into cutting rates too far, inflation will remain above target, and bond markets will force higher yields at the long end. The result is a steeper yield curve for all the wrong reasons.
To be clear, some make credible arguments about how the Fed is going about their business all wrong, and that the institution needs some “new blood” to become more in tune with and relevant to, the modern economy. However, we won’t opine on that – our main point is that the direction the Fed is now headed is clear, and that direction is decidedly toward easier monetary policy, in our opinion.
Further, risks are amplified by the broader policy mix. Fiscal policy is already delivering one of the largest peacetime stimulus packages in history. The “One Big Beautiful Bill Act,” passed in June, adds $2.4 trillion in spending over the next decade, with roughly $350 billion front-loaded into current projects. The FY2025 deficit is projected at $1.9 trillion, or more than 6% of GDP. That kind of government outlay boosts nominal growth and corporate profits in the short term, but it also lays a foundation for inflation that the Fed will have difficulty containing if it is pressured to ease.
Trade policy compounds the problem. The rollback of the “de minimis” exemption on small imported parcels has imposed duties on virtually every cross-border purchase, raising consumer costs by an estimated $11 billion a year and as much as 15% at checkout. At the wholesale level, the July Producer Price Index surged 0.9% month-on-month, the largest jump in over three years, with core PPI up 3.7%. These are not temporary quirks; they are the downstream effects of tariffs and protectionist measures that act like a permanent tax on goods.
Against this backdrop, the case for aggressive rate cuts is weak. Yet Miran’s dissent, and the political campaign surrounding his appointment, signals that the Fed may be willing—or compelled—to provide them anyway. For investors, the message is clear: the U.S. is entering an era where political considerations may weigh more heavily than economic fundamentals in shaping monetary policy. That means easier money, a weaker dollar, and inflation that runs hotter and longer than the Fed’s official 2% target.
How should portfolios adjust? The lesson from history is that financial repression—keeping rates artificially low while inflation runs above them—hurts holders of cash and bonds, while favoring real assets. Equities, especially those of companies with pricing power, tend to fare better than fixed income in such regimes. Commodities and precious metals offer a direct hedge against currency debasement. And foreign markets, which now trade at more attractive valuations and benefit from stronger currencies, present compelling diversification.
In the months ahead, the headlines will likely focus on each rate move or fiscal package. But investors should keep sight of the bigger picture. A Fed that is losing independence is a Fed that will struggle to anchor inflation. That trajectory can fuel asset prices for a time, but it leaves the dollar weaker and raises long-term risks for savers. At Euro Pacific, our stance remains consistent: reduce reliance on dollar assets, overweight foreign equities and commodities, and if you must stay in U.S. markets, lean into stocks over long-term bonds.
The canary has sung. Stephen Miran’s appointment is not just about one dissenting vote; it is a warning that the Fed’s guardrails are weakening. Investors would do well to prepare for what that means.
At Euro Pacific Asset Management, we build for exactly this environment: diversified across currencies, overweight high-quality foreign equities, and balanced with commodities and precious metals as inflation insurance. To discuss how to adapt your allocation to a more politicized Fed and a higher-inflation baseline, contact an EPAM advisor or visit EuroPac.com.
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