The Federal Reserve on Wednesday moved to cut its target interest rate for the first time in 2025 by a quarter point, amid increasing fears about the U.S. job market. The action reduces the benchmark overnight lending rate to 4.00%-4.25% and comes when inflation is still high. Officials said that two further reductions may occur before the end of the year, the result of increased prudence in responding to economic prospects. Although the move was the subject of broad support, newly promoted Governor Stephen Miran opposed it, calling for a more significant decrease, as a sign of differing views within the Fed over how to balance growth, jobs, and prices.
Looking Ahead: Two More Cuts Expected
On an 11-1 vote, the Federal Open Market Committee (FOMC) cut 25 basis points, indicating fewer dissents than expected. Governors Michelle Bowman and Christopher Waller voted with the majority to implement the move, while Miran voted for a deeper reduction. The Fed’s announcement highlighted that economic growth has “moderated,” job increases have decelerated, and prices continue to be “somewhat elevated.”Federal Reserve Chairman Jerome Powell described the cut in interest rates as an exercise in “risk management” to maintain stability, rather than one driven by economic necessity. Markets reacted in turmoil, with shares and Treasury yields registering mixed moves in their aftermath. Officials’ pre-meeting forecasts, the “dot plot,” imply that there are two additional rate cuts possible this year, although individual assessments differ. Nine expect a single additional cut, 10 expect two, probably at the October and December meetings. The plot also shows one cut in 2026, with the long-run neutral level running at about 3%, pointing toward a restrained stance toward further policy accommodation.
Politics and Economic Indicators Guide Fed Actions
Labor Market in Focus
President Donald Trump has repeatedly urged the Fed to make steeper cuts to prop up growth and reduce borrowing costs. Miran, a Trump nominee, has come out in support of deeper cuts, challenging the independence of the central bank. At the same time, issues with the labor market linger: the unemployment rate increased to 4.3% in August and job creation slowed considerably compared to previous releases. Despite sound consumer consumption and moderate expansion, the Fed’s move reflects its commitment to contain risks to employment while offsetting inflation pressures.
