The Federal Reserve lowered its benchmark interest rate by a quarter percentage point on Wednesday, the first cut in nine months, as officials shifted focus from inflation worries to signs of weakness in the labor market.
The move brings the federal funds target range to 4%–4.25%, its lowest level in nearly three years. Officials also indicated that two more reductions could come before year’s end, likely at meetings scheduled for October and December.
Recent revisions to job data showed a sharp slowdown in hiring. Payroll gains that initially appeared steady were revised downward, while unemployment edged up to 4.3% in August. Policymakers concluded the economy faces mounting downside risks, even as inflation has ticked higher in recent months.
The decision was not unanimous. Eleven of 12 voting members supported the smaller cut, while newly confirmed Fed governor Stephen Miran argued for a larger half-point move. Projections released Wednesday revealed a divided committee: some participants see no need for additional cuts this year, while others anticipate at least two more.
Officials face the challenge of balancing persistent price pressures with evidence that growth is losing steam. Core inflation has risen from a four-year low earlier this year to 2.9% in July, partly due to new tariffs and trade policy shifts that have increased costs for businesses. At the same time, tighter immigration rules may be constraining labor force growth, complicating the interpretation of weaker hiring figures.
The cut is expected to ease borrowing costs for consumers with variable-rate debt and small businesses dependent on credit. Mortgage rates, though less sensitive to single Fed moves, have already drifted lower as markets priced in expectations of a gradual easing cycle.
The decision also comes amid intense political scrutiny. President Donald Trump has pressed the central bank for faster and deeper reductions while pursuing policies that have altered the economic landscape. Despite the backdrop, Fed officials emphasized their decisions remain driven by economic risks, not politics.
Source: WSJ