The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, moving its benchmark range to 4.00%–4.25%. The move had been expected by investors but carried new weight as the central bank acknowledged both cooling in the job market and inflation that remains above target.
The vote was 11 to 1, with Governor Stephen Miran preferring a larger half-point reduction. His dissent reflected the debate over how quickly the Fed should ease policy as unemployment edges higher.
In its statement, the Fed said hiring has slowed and economic activity has moderated, while inflation is still elevated. The committee also highlighted that risks to employment have increased, a shift in emphasis from earlier meetings.
Chair Jerome Powell told reporters the decision was intended as a “risk management” step. He noted that both job seekers and employers are showing less urgency, calling the slowdown in supply and demand for workers unusual. Powell said the cut leaves policy in a more neutral stance, rather than restrictive.
The Fed’s quarterly “dot plot,” which shows where individual policymakers expect rates to go, revealed a divided outlook. Ten officials anticipated two more reductions by year’s end, nine saw only one, and one projected a steeper path. Markets largely expect additional cuts in October and December.
Reaction was mixed across financial markets. Stocks fluctuated as Powell spoke, and Treasury yields slipped at the short end while rising on longer maturities. Traders had largely priced in Wednesday’s outcome but remain uncertain about the pace of future moves.
Politics once again hovered over the meeting. President Donald Trump has repeatedly pressed the Fed to cut rates faster and deeper, arguing it would help housing and reduce government borrowing costs. Miran, a Trump appointee, echoed that view, while other Trump-nominated governors, Christopher Waller and Michelle Bowman, supported the quarter-point step after dissenting earlier in the year.
Governor Lisa Cook, appointed by former President Joe Biden, joined the majority despite Trump’s attempt to remove her from the board. Courts have blocked that effort, allowing her to take part in the decision.
Powell defended the Fed’s independence, saying policy choices rest on economic data and the institution’s dual mandate rather than political pressure.
For households, the direct impact of this week’s cut will be limited. Credit card interest rates remain above 20% and will only fall marginally in response. Auto loans may ease slightly for borrowers with strong credit, while those with weaker credit histories are unlikely to see relief. Mortgage rates, which track long-term Treasury yields more than Fed policy, could soften if easing continues, but the effect will take time.
Savers, meanwhile, can expect yields on savings accounts and certificates of deposit to drift lower as banks adjust more quickly on deposits than on loans.
The broader challenge for the Fed lies in balancing inflation, now around 3%, with rising unemployment, which recently reached 4.3%. Job growth has slowed, and revised figures showed fewer positions were created earlier in the year than first reported.
Powell said there is no easy path forward, and decisions will be made meeting by meeting. With two more cuts penciled in for 2025, the Fed faces a test of how to support jobs without letting inflation regain momentum.
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