The Federal Reserve cut its benchmark interest rate by 0.25 percentage points on Wednesday and signalled two more reductions could follow before the end of the year amid growing concerns about the U.S. labour market and persistent inflation.
The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate range to 4.00%–4.25%. Governor Stephen Miran dissented, favouring a half-point cut. Governors Michelle Bowman and Christopher Waller, both Trump appointees, supported the quarter-point reduction despite Trump’s calls for more aggressive easing to boost the economy and housing market.
The committee described economic activity as “moderated,” but noted that job gains have slowed and inflation remains somewhat elevated, revealing a tension between the Fed’s goals of price stability and maximum employment. The statement also warned of elevated uncertainty and increased downside risks to employment.
Markets reacted with mixed stock performances and fluctuating Treasury yields. Chair Jerome Powell characterised the move as “risk management,” while economist Dan North saw it as a deliberate effort to steer the economy.
Powell expressed concern about labour market softness, noting the unusual slowing in both labour supply and demand. He said the cut moved policy closer to a neutral stance.
The Fed’s “dot plot” forecast showed most officials expect two further rate cuts this year, with one dissenting participant opposed to any more cuts. Miran’s projection suggested as much as 1.25 percentage points of easing.
Simon Dangoor from Goldman Sachs said the “doves” have taken control of the Fed, with surprises needed to change the easing course. Economic projections showed slightly stronger growth but unchanged unemployment and inflation expectations.
Political tension surrounded the meeting, with Trump’s pressure on the Fed and the appointment of Miran raising questions about the central bank’s independence. A court blocked Trump’s attempt to remove Governor Lisa Cook, a Biden appointee who voted in favour of the rate cut amid unproven allegations.
Despite ongoing economic growth and strong consumer spending, unemployment rose to 4.3% in August, the highest since 2021, with job creation slowing.