The Federal Reserve in the United States has reduced interest rates by 0.25% as a response to concerns about job market weakness. The majority of President Donald Trump’s appointees at the central bank supported this decision. However, the new governor, Stephen Miran, dissented in favor of a larger 0.5% cut.
During a press conference following the two-day meeting, Fed chair Jerome Powell stated that there was not widespread support for a 0.5% cut at this time. The rate cut, along with projections indicating the possibility of two more cuts by the year’s end, suggests that Fed officials are now more focused on addressing weakening economic growth and potential rising unemployment rather than inflation risks from trade policies.
Powell highlighted that uncertainties surrounding government policies and their impact on the economy persist, with a notable decline in labor force participation attributed to immigration policies. Economists have cautioned that the administration’s immigration strategies, including mass deportations, could shrink the labor force, impacting job creation.
The recent rate cut, the first by the Federal Open Market Committee since December, has adjusted the policy rate to the range of 4-4.25%. The Fed expressed concerns about downside risks to employment, citing a slowdown in job gains and a slight uptick in the unemployment rate. Economic forecasts indicated that inflation is expected to reach three percent by year-end, above the Fed’s target of two percent.
Powell noted that risks of higher and sustained inflation have diminished due to the softening labor market and slowed GDP growth. While tariffs may push up prices, Powell suggested that this could be a one-time occurrence rather than a continuous inflationary trend. Unemployment projections remained at 4.5%, with a slight increase in economic growth to 1.6% from the previous 1.4%.
Following the decision, stocks saw a modest increase, the dollar weakened against major currencies, and Treasury yields remained stable. Futures markets are indicating a high probability of another rate cut at the Fed’s upcoming meeting in late October.