By Agencies
The Federal Reserve announced a quarter-point cut to its key interest rate on Wednesday, indicating it plans to make two additional cuts this year amid rising concerns about the labor market’s health. This marks the first rate reduction since December, bringing the short-term rate down to approximately 4.1%, from 4.3%.
Chair Jerome Powell and other Fed officials had maintained the rate earlier this year while assessing the impact of tariffs, stricter immigration policies, and other actions from the previous administration on inflation and the economy. However, focus has shifted from inflation—currently modestly above the 2% target—to employment, as hiring has significantly slowed and the unemployment rate has risen.
“Downside risks to employment have risen,” the Fed stated following its two-day meeting. Officials also indicated that they expect two more cuts this year, but only one in 2026, which may not meet Wall Street’s expectations. Prior to the meeting, investors anticipated five cuts over the remainder of this year and into next.
Stephen Miran, a Fed policymaker appointed by President Trump, was the sole dissenter in the decision. Miran was confirmed by the Senate just hours before the meeting. Many economists predict further dissent in future meetings, suggesting Powell managed to present a united front from a committee that includes Miran and two other Trump appointees.
In their last meeting in late July, Powell described the job market as “solid,” opting to keep rates steady while officials assessed economic developments. However, recent government reports highlighted a sharp decline in hiring, with a slight reduction in payrolls in June and a modest increase in August.
Last week, the government also indicated that its estimate for job gains for the year ending in March 2025 might be revised downward by 911,000, reflecting a significant drop in employment figures. Previously, Powell and other officials cited a strong job market as a reason to maintain current rates. With businesses now hesitant to hire, the case for a rate cut—expected to encourage borrowing and spending—has strengthened.
“This downward revision is a huge downgrade,” remarked Talley Leger, chief market strategist at the Wealth Consulting Group. “If that doesn’t prompt action from the Fed, I don’t know what will.”
Despite these developments, inflation remains persistently high, partly due to tariffs increasing costs for goods like furniture, appliances, and food. Prices rose 2.9% in August compared to the previous year, up from 2.7% in July.
Ongoing inflation could prevent the Fed from making swift cuts. The central bank will release its quarterly economic projections after Wednesday’s meeting, and many economists expect these will show three total reductions this year and at least two more next year.
Five reductions would lower the Fed’s key rate to just above 3%, a level deemed neutral for the economy. If concerns about a potential recession arise, the Fed may accelerate rate cuts. However, most economists currently do not see the need for rapid reductions.
“We’re not at a break-glass moment,” stated Vincent Reinhart, chief economist at BNY Investments. “This is a recalibration.”
