Federal Reserve cuts interest rates for the first time this year

The Federal Reserve on Wednesday announced a highly anticipated interest rate cut, a move indicating that concerns about a slowing labor market now outweigh ongoing worries about inflation.

It’s the Fed’s first rate cut this year. Policymakers opted for a quarter-point cut to the central bank’s benchmark rate, in line with expectations. It’s now set at 4% to 4.25%.

“The labor market is really cooling off,” Fed Chair Jerome Powell said in a news conference Wednesday following the rate-cut announcement.

The cut comes amid an unprecedented pressure campaign by the Trump administration that has included attacks on Powell for not lowering rates sooner, as well as an effort to unseat a Biden-era Fed appointee over accusations of mortgage fraud.

But Powell and the Fed had resisted Trump’s pressure, saying that its dual mandate of keeping both unemployment and inflation low meant that it needed to be careful not to overheat the economy and risk a return to rapidly rising prices.

“We’ve done very large rate hikes and very large rate cuts in the last five years, and you tend to do those at a time when you feel that policy is out of place and needs to move quickly to a new place,” Powell said. “That’s not at all what what I feel.”

The vote for the quarter-point cut by the Fed’s rate-setting committee was 11 to 1. The sole dissenter, in favor of a larger half-point cut, was newly appointed governor Stephen Miran. He was sworn in this week even as he maintains his title as chair of the White House’s Council of Economic Advisers, though he is officially on leave from that role.

President Donald Trump’s two other appointed governors, Michelle Bowman and Christopher Waller, both voted for the quarter-point cut.

In its Wednesday statement, the Fed indicated it expects two more rate cuts this year. However, seven of the 12 officials on the Fed’s rate-cutting committee indicated that rates should remain unchanged for the rest of the year.

The committee will meet again in October and December.

The labor market appears to be slowing dramatically. August’s jobs report showed^[1] that just 22,000 jobs were added, far below the expectations of economists. That report also showed that the U.S. lost jobs in June. So far this year, the economy has added 598,000 jobs, compared with 1.4 million for the first eight months of 2024. The unemployment rate also ticked higher last month to 4.3%, a level not seen since September 2017 outside of the Covid-19 pandemic.

In the news conference, Powell called the labor market “unusual,” noting fewer firms are hiring — but that the available supply of workers is also declining due to Trump’s immigration crackdown.

Lower rates could help businesses hire as it becomes less expensive to take out loans, and credit card rates fall for consumers.

At the same time, inflation has been creeping up. Since April, when Trump announced his sweeping “reciprocal” tariffs, inflation has increased^[2] from 2.3% to 2.9% in August. The Fed’s inflation target is 2%.

Fed officials said in a separate set of economic projections that they see two additional quarter-point rate cuts this year and a third in 2026.

“After weak July and August employment reports and a large negative preliminary benchmark revision^[3], job growth now appears to be much lower and below the breakeven rate, the risks still tilt toward further negative revisions, the unemployment rate has risen slightly for two months in a row, and our broader measure of labor market slack has risen a bit more,” Goldman Sachs economists wrote.