By Bryan Mena, CNN

Washington (CNN) — Rising unemployment will likely be what pulls the trigger for the Federal Reserve to finally begin lowering interest rates again, economists say.

Since January, the Fed has stood on the sidelines, keeping its benchmark lending rate unchanged at about 4.4%. Officials have said in recent speeches that they want to see how President Donald Trump’s significant policy changes, including on tariffs, affect the US economy first before considering further rate cuts.

Renewed tensions in the Middle East add even more to the uncertainty that has paralyzed the central bank. Officials are expected to continue with their strategy of staying on hold at the conclusion of their two-day policy meeting on Wednesday, with an announcement at 2 p.m. ET.

But the economy could soon buckle as Trump’s tariffs begin to force shoppers to pull back on their spending, eventually sending unemployment higher as company profits take a hit. That would give the Fed, which is responsible for preserving the labor market’s strength, the signal to start lowering rates.

New economic projections from Fed policymakers could show they expect to lower rates at least once this year — and it will likely be because of bad news, economists say.

“The Fed will probably start to cut rates in the second half of the year as the tariffs start to weigh on growth and you see the unemployment rate coming up,” Jay Bryson, chief economist at Wells Fargo, told CNN.

While the Fed will likely lower rates eventually, the Fed’s expected decision on Wednesday might not sit well with Trump, who has torn into Fed Chair Jerome Powell for not lowering borrowing costs already, describing the Fed leader as a “fool” and a “numbskull.”

The bigger worry

In April after Trump unveiled a massive tariff hike on dozens of countries, Powell predicted the Fed could be in a situation in which both of the US central bank’s goals — stable prices and maximum employment — are “in tension.”

A stagnant economy combined with rising inflation is referred to as “stagflation,” which isn’t happening outright, but forecasts from most economists, in addition to Fed officials themselves, show the US economy is trending in that direction. Officials’ new projections, to be released Wednesday, will likely show they still expect stagflation to slowly take shape this year.

Such a situation puts the Fed in a difficult situation, and Powell has said how the Fed responds depends on which variable is in a worse state. The bigger worry for the Fed may end up being with the labor market.

“The steady unemployment rate notwithstanding, cracks are becoming more evident in the labor market,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, wrote in a recent analyst note. “Job openings are down, job creation has slowed, and unemployment claims continue to edge higher.”

Fed officials have signaled that they will step in by lowering rates if the labor market shows concerning signs of strain.

Trump ramps up the pressure on the Fed

For months, Trump has lambasted the Fed and Powell himself for not lowering borrowing costs quickly enough.

Trump has said the Fed is lagging behind its European counterpart and has claimed, without evidence, that the reason Powell is not lowering rates is to help Democrats. (The Fed is an independent agency whose decisions on monetary policy are free of political interference.) Trump has also said the Fed ought to lower rates to reduce the federal government’s interest payments on its massive budget deficits, which are expected to grow even larger if Congress passes the president’s tax and spending bill.

“We’re going to spend $600 billion a year, $600 billion because of one numbskull that sits here (and says), ‘I don’t see enough reason to cut the rates now,’” Trump said at the White House last week.

However, Fed officials don’t consider the government’s finances when setting rates. They focus on achieving their so-called dual mandate of stable prices and maximum employment.

Other administration officials have piled on to the criticism of the Fed recently.

“It’s unbelievable how much we would save if [Powell] did his job and he cut interest rates,” Commerce Secretary Howard Lutnick told Fox News last week. “Come on. He’s got to do his job soon.”

Last week, Vice President JD Vance accused the Fed of deliberate misconduct for not lowering borrowing costs, writing in a post on X that the Fed is engaged in “monetary malpractice.”

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