Federal Reserve Chair Jerome Powell. (Reuters)
The Federal Reserve on Wednesday lowered interest rates by a quarter percentage point, marking its first fed rate cut this year. The central bank also signaled two more reductions could follow in 2025, reflecting growing caution amid a softening labor market.
The Fed voted to set its benchmark rate at 4.00% to 4.25%, ending months of steady policy. The 25-basis-point reduction is the first easing since December 2024.
Newly confirmed Fed governor Stephen Miran dissented, advocating for a half-point cut. Miran, appointed earlier this week, previously served as a White House adviser under former President Trump.
Powell Explains Timing
Fed Chair Jerome Powell said the bank’s timing was deliberate.
“I think we were right to wait until now to make the first cut,” Powell said at a press briefing. He noted the need to evaluate economic impacts, including tariffs.
Powell also addressed criticisms from the White House suggesting the Fed had been “too late” in considering a rate cut. He stressed that there was no broad support among officials for a larger reduction.
“We are strongly committed to maintaining our independence,” Powell added when asked about political pressures.
Mixed Views on Future Fed Rate Cuts
The Fed’s median forecast indicates two more rate cuts this year, a shift from the June estimate. Officials cited slowing job growth as a key factor.
“Job gains have slowed, and the unemployment rate has edged up,” the Fed said. It also removed the previous description of the labor market as “solid.”
The projections were detailed in the Fed’s “dot plot,” a quarterly chart showing officials’ predictions for benchmark rates. The latest plot revealed ongoing division: nine officials see three cuts, six foresee one cut, one predicts none, and another anticipates six. For 2026, the median projection is one more cut.
Powell acknowledged the differing perspectives.
“There is no risk-free path,” he said. “It is a difficult situation for policymakers balancing price stability and employment goals.”
Economic Outlook
The Fed updated its economic forecasts alongside the rate decision. Inflation is expected to rise 3.1%, unchanged from June. GDP growth was revised upward to 1.6% from 1.4%, while unemployment is projected to tick up to 4.5%, slightly above the current 4.3%.
The labor market had already shown signs of slowing before the meeting. August added only 22,000 jobs, with unemployment rising from 4.2% to 4.3%. June’s job growth was revised to -13,000, while July lagged behind previous trends. This marked three consecutive months of slowing employment gains.
Despite easing, inflation remains above the Fed’s 2% target. Core prices, which exclude food and energy, rose 3.1% in August, unchanged from July.
Political Pressure on the Fed
The rate cut comes amid mounting political pressure from President Trump, who has repeatedly urged lower rates. He has also moved to influence the central bank’s leadership by installing Miran and attempting to remove Fed governor Lisa Cook.
Cook’s removal has faced legal setbacks, with a federal appeals court rejecting Trump’s attempt to oust her. The administration is now expected to appeal to the Supreme Court. Powell refrained from commenting on the ongoing legal dispute, emphasizing the Fed’s commitment to its work.
“We are just going to keep doing our jobs,” Powell said, underlining the institution’s independence.
The Fed’s decision and updated projections signal cautious optimism but also a recognition of economic challenges ahead. Policymakers are carefully balancing slower job growth with persistent inflation, aiming to guide the economy without triggering disruption.
