The Federal Reserve cut its interest rate target on Wednesday for the third time since President Donald Trump entered his second term, a move toward easing monetary policy.
After a two-day meeting of its monetary policy committee in Washington, the Federal Open Market Committee announced it would move its rate target to a range of 3.50% to 3.75%, down from 3.75% to 4%.
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Investors widely expected the move, which comes after the Fed began cutting interest rates in September.
Fed governor Stephen Miran, who was recently nominated by Trump and confirmed by the Senate, dissented on the rate decision. He preferred a larger half-percentage-point cut. Jeffrey Schmid, the president of the Federal Reserve Bank of Kansas City, and Austan Goolsbee, president of the Federal Reserve Bank of Chicago, also dissented, but they favored no cut at all.
President Donald Trump and others in the administration have been pushing for rate cuts after months of the Fed, led by Chairman Jerome Powell, holding rates steady to drive down inflation.
But further tension between the president and the central bank over monetary policy is still likely in the months ahead. Wednesday’s rate cut is not as steep as Trump has called for, and 2026 is likely to feature fewer interest rate revisions as the central bank works to depress inflation, which is still running above the Fed’s 2% long-term target.
The Fed’s move to lower its target interest rate comes as a slowdown in the labor market has raised fears that more monetary easing may be needed to prevent a recession. Still, while the labor market has softened, unemployment has not spiked, which gives the central bank more leeway to hold rates higher.
Recent employment reports have shown job growth slowing, although there have been some gaps in the publication of key jobs and inflation data because of the recent government shutdown, which was the longest in U.S. history.
The economy added 119,000 jobs in September, and the unemployment rate ticked up a tenth of a percentage point to 4.4%, according to the most recent Bureau of Labor Statistics jobs report. Employment growth appears to be running just at or below the rate needed to keep the employment rate steady.
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 interest rate 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% level.
Available reports show inflation is running too hot.
Inflation rose one-tenth of a percentage point to 2.8% for the year ending in September, according to the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures index.
Core inflation, which strips out volatile food and energy prices, fell one-tenth of a percentage point to 2.8% on an annual basis. Core inflation was 0.2% on a monthly basis.
The release of the most closely watched inflation gauge, the consumer price index, was canceled for October. The September CPI showed inflation rose 3% on an annual basis.
The Fed also released updated multiyear projections for inflation, GDP, and unemployment, as it does every other meeting.
Fed officials said they see inflation, as gauged by the personal consumption expenditures index, falling to 2.4% by the end of next year.
The officials also predicted that the unemployment rate would rise to 4.5% by the end of this year, before falling to 4.4% by the end of 2026.
In terms of GDP growth, they predict 2.3% GDP growth next year, an increase from September, when board participants were projecting more modest 1.8% growth.
Also looming on the horizon for 2026 is the fact that Powell’s term as chairman will come to an end. Trump has routinely savaged him for not lowering interest rates enough, and the president said this week that he views a willingness to quickly reduce interest rates as a litmus test for whoever he chooses.
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But whoever replaces Powell — National Economic Council Director Kevin Hassett is seen as the front-runner — will only be able to influence lower rates so much, given that rate revisions are decided by a majority vote of the monetary policy committee, rather than by the chair alone.
Trump has said he has narrowed his pick for Fed chair down to one person, but he will not announce who that is until early next year after the holidays.
