Washington — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday as policymakers responded to concerns about weakness in the job market in a move that won support from most of President Donald Trump’s central bank appointees.
Only Stephen Miran, who joined the Fed on Tuesday and is on leave as the head of the White House’s council of economic advisers, dissented in favour of a 50 basis-point cut.
The rate cut, along with projections showing two more 25 basis-point reductions are anticipated at the remaining two policy meetings this year, indicate Fed officials have begun to downplay the risk that the administration’s trade policies will stoke persistent inflation, and are now more concerned about weakening growth and the likelihood of rising unemployment.
The cut, the first move by the policy-setting federal open market committee since December, moves the policy rate to the 4%-4.25% range.
“In the near term, risks to inflation are tilted to the upside and risks to employment to the downside, a challenging situation” for monetary policymakers, Fed chair Jerome Powell said in a press conference after the meeting.
“It’s really the risks that we’re seeing to the labour market that were the focus of today’s decision.”
Powell said he believes the recent pace of job creation is running below the break-even rate needed to hold the unemployment rate constant, and that with businesses doing very little hiring overall, any increase in layoffs could quickly feed into higher unemployment.
“The labour market is softening and we don’t need it to soften any more,” he said.
The Fed leader said the central bank was shedding 10% of its staff and “at the end of that” Fed staffing would be where it was a decade ago.
On the prospect of reforms of the Fed, Powell said “we’re certainly open to constructive criticism and ways to do our jobs better”, but he leant against the need for a formal review of the central bank.
The Fed said in its policy statement on Wednesday: “The committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen. Job gains have slowed, and the unemployment rate has edged up.”
The latest economic forecasts show policymakers still see inflation ending this year at 3%, well above the central bank’s 2% target, a projection unchanged from the Fed’s last set of forecasts published in June. The forecast for unemployment was also unchanged, at 4.5%, though economic growth was slightly higher, at 1.6% compared to 1.4%.
Stagflation risk easing
Compared to the stagflationary risks contained in the last set of projections, with the Fed slowing rate cuts to head off inflation, the new projections show an emerging sense among officials that they can head off any rise in unemployment with a faster pace of rate cuts, while inflation eases slowly next year.
The move to a more consistent pace of cuts was backed by Fed governor Christopher Waller and vice-chair of supervision Michelle Bowman. Both are Trump appointees who dissented over the policy decision in late July to hold rates steady.
Miran dissented on the latest cut and appears to have pencilled in the steepest rate cuts in projections issued after he joined the board of governors on Tuesday. In the newest “dot plot”, one rate projection of 2.875% for the end of 2025 stands out as being three-quarters of a percentage point below the next lowest one. Trump has demanded steep rate cuts.
Also voting in favour of the decision was Lisa Cook, who attended the meeting despite Trump’s efforts to fire her and after two courts supported her challenge of his attempted dismissal.
Update: September 17 2025
This story now includes Fed chair Jerome Powell’s comments.
Reuters
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