The Federal Reserve cut interest rates by a quarter point as central bankers said worries about a wobbly US job market have begun to outweigh anxieties over inflation.
Eleven of the Fed’s 12 central bankers voted for the regular-size cut including Fed Chairman Jerome Powell, who has spent most of the year deflecting attacks from President Trump over his refusal to lower rates.
The exception was Stephen Miran, who instead voted for a jumbo-size, half-point cut — one day after he left his position as Trump’s economic adviser to become a Fed governor.
Central bankers have been delaying rate cuts over fears that tariffs could reheat inflation, which has shown signs of picking up over the summer. Consumer spending has likewise been resilient despite Trump’s tariffs.
Fed Chairman Jerome Powell called Wednesday’s decision a “risk-management cut” as policymakers confront a “very different picture of the risks to the labor market” following major downward revisions to job growth earlier this month.
A narrow majority of central bankers pencilled in two more rate cuts before year’s end. During his Jackson Hole speech last month, Powell signaled that the weakening labor market is now a greater concern than inflation – especially since tariffs might only introduce a one-time price impact.
“The most encouraging part of this statement is the 11-1 decision, giving a sense of greater unanimity than what we were expecting,” Jeffrey Roach, chief economist for LPL Financial, said in a note Wednesday.
“As the risks to labor markets rise, we should expect further cuts in October and December.”
The Dow Jones Industrial Average soared about 450 points immediately after the policy note’s release, but the rally was cut to just 260 points, or 0.6%. Investors had largely been expecting a quarter-point cut on Wednesday.
President Trump has ramped up his pressure campaign on the Fed to cut rates for months. The attacks have turned personal, most recently slamming Powell as “incompetent” on Sunday.
Start your day with all you need to know
Morning Report delivers the latest news, videos, photos and more.
Thanks for signing up!
Miran was sworn in to the board just minutes before the Fed’s two-day meeting started on Tuesday.
When asked whether Miran’s appointment, considering his close ties to the president, will influence the Fed’s independence, Powell said: “We’re strongly committed to maintaining our independence and beyond that I really don’t have anything to share.”
He also said he doesn’t think the Fed will “ever get to that place” where its decisions are politicized.
Fed governor Lisa Cook, who the Trump administration has attempted to oust over accusations of mortgage fraud, also voted on Wednesday’s decision.
Fed officials are projecting that the unemployment rate could rise to 4.5% by the end of the year, above its current 4.3% rate but in line with earlier estimates.
Most policymakers forecast slightly higher economic growth of 1.6% this year compared to earlier projections.
Officials maintained their forecast for inflation to rise to 3.1% this year, though they are now less optimistic about how much it will decline in 2026 – to only 2.6%. They do not see inflation returning to the Fed’s 2% goal until 2028.
Leave a Reply