The Federal Reserve lowered its benchmark interest rate by a quarter point on Wednesday, its first reduction since December 2024, and signalled that more cuts are likely in the months ahead. Governor Stephen Miran dissented, favouring a deeper half-point move.
The decision brings the federal funds target range to 4.00%–4.25%, down from 4.25%–4.50%. It reflects the central bank’s increased concern about a slowing labour market, even as inflation remains above target.
“The pace of hiring is now running below the level needed to hold the unemployment rate steady,” Fed Chair Jerome Powell said at a press conference after the decision. “We will continue to make our decisions meeting by meeting, informed by the data.”
Policymakers’ quarterly projections show expectations for at least two further quarter-point cuts before the end of 2025. Inflation is forecast at roughly 3% by year-end, with unemployment projected at 4.5% and economic growth slowing to 1.6%.
Miran, confirmed to the Board earlier this week after a narrow Senate vote, cast the only dissent in favour of a larger 0.50 percentage point cut. Analysts noted one unusually aggressive rate forecast in the Fed’s “dot plot” projections, widely believed to be his.
The cut marks a pivot in emphasis from inflation, which has moderated from its 2022 highs but remains above the Fed’s 2% goal, toward stabilising employment. Recent data showed softer payroll growth, shorter workweeks, and increased unemployment risk among younger and minority workers.
Markets reacted cautiously. US Treasury yields eased and the dollar slipped initially, but equity gains proved short-lived. Futures markets are now pricing in a high probability of another cut at the Fed’s October meeting.
The central bank’s move comes against a tense political backdrop. Miran, a former adviser to Donald Trump, took his seat just two days before the decision. His arrival has sharpened scrutiny over the Fed’s independence, particularly amid attempts by some lawmakers to remove Governor Lisa Cook. Powell stressed that policy decisions remain “focused solely on our dual mandate.”
The Federal Open Market Committee next meets in late October, when it will again assess incoming labour and inflation data.
