WASHINGTON: The U.S. Federal Reserve lowered interest rates by a quarter percentage point on Wednesday, the first cut since December 2024, and signaled more reductions were likely as it seeks to stem rising risks in the labor market.
The decision moves the benchmark rate to a 4.00%–4.25% range, a shift welcomed by markets but falling short of the steep cuts demanded by President Donald Trump.
The sole dissent came from newly appointed Fed Governor Stephen Miran, who favored a half-point cut and appeared to pencil in projections for even deeper reductions, possibly taking rates below 3% by year-end.
Powell: Labor Market Now Top Concern
At a press conference after the two-day policy meeting, Fed Chair Jerome Powell said signs of weakness in the job market were now at the forefront of the central bank’s decision-making.
“There are no risk-free paths. It’s not incredibly obvious what to do,” Powell told reporters. “We have to keep our eye on inflation at the same time, we cannot ignore maximum employment.”
Powell noted that the pace of job creation had slowed below the level needed to hold the unemployment rate steady. “You see minority unemployment going up. You see younger people more susceptible to economic cycles, in addition to just overall lower payroll job creation. That shows you the labor market is weakening at the margin. We don’t need it to soften anymore,” he said.
Political Drama Surrounds Meeting
The meeting was marked by political drama. Trump, who has long pressured the Fed to cut rates more aggressively, recently tried to remove Governor Lisa Cook in an effort to open another board seat. Cook attended the meeting and voted with the majority after two courts blocked Trump’s attempt to dismiss her.
Miran, sworn in only a day earlier, cast the lone dissent. Analysts quickly attributed the lowest projection in the Fed’s updated “dot plot” to him, reflecting support for sharper cuts.
Despite concerns about White House influence, two other Trump-appointed governors – Michelle Bowman and Christopher Waller – sided with the consensus after dissenting at the previous meeting.
“It’s deeply in our culture to do our work based on the incoming data and never consider anything else,” Powell said when asked about Fed independence. “There wasn’t widespread support at all for a 50-basis-point cut today.”
Balancing Inflation and Jobs
The Fed’s updated projections showed inflation ending 2025 at 3%, above the 2% target and unchanged from June forecasts. Unemployment is expected to remain at 4.5%, while GDP growth was revised slightly higher to 1.6% from 1.4%.
Analysts said the Fed appeared to be prioritising employment risks over elevated prices. “Policymakers deemed that the downside risk to employment has increased, and therefore it would seem that they are weighting the labor market more than the higher inflation,” said Ellen Hazen, chief market strategist at F.L. Putnam Investment Management.
Powell said what mattered most was not the initial cut but the broader rate path, which now points to a slightly lower endpoint than previously communicated. “We are in a meeting-by-meeting situation,” he added, noting that inflation pressures remain a risk even as the Fed moves closer to a neutral stance.
Christopher Hodge, chief U.S. economist at Natixis, said he expects the Fed to “ultimately keep moving towards neutral, even at the expense of slightly higher inflation through 2026.”
Market Reaction
Markets initially rose on the news before retreating. Stocks closed mixed, the dollar edged higher, and Treasury yields were little changed. Futures markets priced in mo
