The Federal Reserve cut its interest rate target on Wednesday for the first time since President Donald Trump entered his second term, signaling a pivot toward easing monetary policy.
After a two-day meeting of its monetary policy committee in Washington, D.C., the Federal Open Market Committee announced it would move its rate target to a range of 4% to 4.25%, down from 4.25% to 4.50%.
The officials indicated that two more quarter-percentage-point cuts are expected this year, although the Fed board was divided over the matter.
Investors widely expected the move. It marks the long-awaited move toward easier money that Trump and others in the administration have been pushing for after months of the Fed, led by Chairman Jerome Powell, holding rates steady to drive down inflation.
Stephen Miran, newly confirmed to the Fed board, was the sole dissenting vote. He preferred the Fed cut rates by a half percentage point.
The decision came amid indications that the labor market has been weakening and might need support from the central bank. Job growth slowed over the summer. Recent jobs reports have seen major downward revisions to growth in previous months, indicating that the labor market is on less solid footing than had been thought.
The Fed has a dual mandate: price stability, which is keeping inflation at a healthy level, and maximum employment, which is ensuring the labor market stays above water.
The impetus for the cut was almost entirely to shore up the maximum employment side of the mandate, as inflation is still running above the Fed’s preferred 2% rate.
Inflation, tracked by the consumer price index, rose to 2.9% in August. The producer price index report showed that annual inflation unexpectedly fell seven-tenths of a percentage point to 2.6% for the year ending in August.
The Fed’s preferred gauge of inflation, the personal consumption expenditures index, held steady at 2.6% for the year ending in July, the most recent reading.
Meanwhile, the labor market is showing signs of cooling off.
The economy added just 22,000 jobs in August, and the unemployment rate rose to 4.3%. Also, the July jobs report revealed that some 258,000 fewer jobs were added in May and June than previously reported.
Additionally, the government announced that labor market growth for the 12 months ending in March was 911,000 jobs fewer than previously reported.
On Wednesday, officials released updated projections indicating that the median Fed official see inflation, as gauged by the personal consumption expenditures index, running at 3% by the end of 2025 and 2.6% by the end of next year, slightly higher than previously projected.
The officials also predicted that the unemployment rate would rise to 4.5% by the end of this year and be at 4.4% by the end of 2026.
Looking ahead, in terms of gross domestic product growth, they predict modest 1.6% growth in 2025 and 1.8% growth in 2026.
But perhaps overshadowing the data at play in the Fed’s decision is the politics.
Trump has vociferously called upon Powell and the Fed to slash interest rates by a far more dramatic degree than the quarter-of-a-point cut that was carried out on Wednesday.
Trump has lambasted Powell, branding him with the nickname “Too Late,” and has said in the past that he would want to see rates plummet to just 1%.
“‘Too Late’ MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!” Trump said Monday on social media.
Also, Miran, an economic adviser to Trump, was part of this week’s Fed decision after being confirmed by the Senate along party lines just hours before the two-day meeting began. He replaced Fed governor Adriana Kugler, who unexpectedly stepped aside last month. Her term ended in January, and Miran is set to serve out the remainder of her term.
Democrats and some Fed experts have criticized Miran for only opting to take an unpaid leave of absence and not resigning from his job as chairman of the White House Council of Economic Advisers.
Fed governor Lisa Cook also took part in the September Fed decision despite Trump’s effort to oust her from the Fed board.
Federal Housing Finance Agency Director Bill Pulte accused her of mortgage fraud, which led Trump to attempt to fire her. But Cook filed a lawsuit, and a judge recently issued a temporary restraining order blocking the move. The matter is expected to be elevated to the Supreme Court.
While the White House argues the accusations disqualify her from serving on the Fed board, Trump’s opponents say they are a pretext to fire an FOMC member and put in a replacement who is more amenable to cutting interest rates and supporting the president’s goals.
