How the Fed sets rates — and why Powell can't do what Trump wants alone

Driving the news: The Trump administration has seized on the Fed's $2.5 billion project to renovate its D.C. headquarters as a possible reason to oust Powell before his term as Fed chair expires in May.

• Trump's relentless efforts to get Powell to either cut interest rates or leave have called the future independence of the central bank into question.
• The mere threat of firing Powell caused a sell-off in markets earlier this year that sent interest rates soaring.
• Trump said as recently as Friday he won't fire Powell, but National Economic Council director Kevin Hassett's recent comments suggested that the Fed's renovations would open the door to doing so.

Here's what to know about the Fed chair's powers:

Who votes on cutting interest rates?

State of play: A group of 12 people, known as the Federal Open Market Committee (FOMC) vote on cutting rates.

• The FOMC includes the seven members of the Fed's Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents.
• The Reserve Bank presidents serve one-year terms on a rotating basis.

How many times a year does the FOMC meet to vote on interest rate cuts?

• The FOMC holds eight regularly scheduled meetings per year, where it reviews "economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth," per the Fed website.

How is the FOMC voting?

According to minutes from the Fed's June meeting, "a couple" officials said they would be open to cutting interest rates at the July 29-30 policy meeting. But a larger group believed rates could stay on hold throughout 2025.

• Fed governors Christopher Waller and Michelle Bowman — both appointed by Trump — have publicly made the case for a rate cut at the Fed's policy meeting later this month, citing beliefs that tariff-related price bumps would be temporary.

Why hasn't the Fed cut interest rates?

What they're saying: Asked why the Fed has not cut interest rates as aggressively as many other global central banks, Powell said, "[Y]ou're right that if you just look in the rearview mirror and look at the existing data that we've seen, you can make a good argument that would call for us to be at a neutral level, which would be a couple of cuts, maybe more."

• "The reason we're not [cutting rates] is forecasts ... that do expect meaningful inflation over the course of the next year," he said.
• Asked about arguments for a potential July rate cut, Powell said that "if it turns out that inflation pressures do remain contained, we will get to a place where we cut rates sooner rather than later."

Powell has referenced inflation from Trump's tariffs specifically, confirming this month that the Fed would have cut rates by now if not for the tariffs.

The bottom line: Getting rid of Powell wouldn't be a straight path to the interest rate cuts that Trump is after.