Fed Cuts Rates for First Time This Year, Signals More to Come

by Emmitt Barry, with reporting from Washington D.C. Bureau Staff

(Worthy News) – The Federal Reserve on Wednesday lowered interest rates for the first time in nine months, citing signs of a cooling labor market and persistent uncertainty in the U.S. economy.

After its two-day policy meeting, the Federal Open Market Committee (FOMC) voted 11-1 to reduce the benchmark federal funds rate by 25 basis points, setting a new target range of 4 percent to 4.25 percent–the lowest in nearly three years.

“Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” the Fed said in a statement explaining its decision.

The lone dissent came from Stephen Miran, a newly confirmed Fed governor, who favored a larger half-point cut. Miran, a former senior White House adviser to President Donald Trump, was sworn in just before the meeting began.

More Cuts Likely

The Fed’s updated projections revealed that a narrow majority of officials expect at least two more cuts this year, potentially at the central bank’s October and December meetings. The post-meeting statement dropped earlier assurances that had downplayed the likelihood of reductions, signaling that officials now see “a shift in the balance of risks.”

Still, the decision highlighted divisions inside the Fed. Seven of 19 policymakers projected no additional cuts for 2025, while two forecast only one more reduction.

Politics and Pressure

The decision unfolded against a backdrop of heightened political pressure. President Trump has repeatedly criticized Fed Chair Jerome Powell for not cutting rates sooner, and last month attempted to fire Governor Lisa Cook–an unprecedented move that courts ultimately blocked.

Powell has insisted the central bank remains independent. “The criticisms aren’t affecting how the Fed does its job,” he said. Markets have rallied in recent weeks, partly in anticipation of Wednesday’s move.

What It Means for Consumers

The cut is expected to bring modest relief for households and businesses carrying variable-rate debt, including credit cards and small business loans. Mortgage rates, while less directly tied to Fed policy, have also been declining in anticipation of a string of rate reductions.

The central bank had previously lowered rates by a full percentage point between September and December 2024 but paused earlier this year as growth held up. Now, officials say signs of labor-market weakness are harder to ignore. Payroll growth has slowed sharply, with job gains falling from an average of 150,000 a month earlier this year to just 29,000 in the three months ending in August. The unemployment rate has ticked up to 4.3 percent.

At the same time, inflation has crept back up. A core measure that strips out food and energy rose to 2.9 percent in July, compared with 2.6 percent in April.

A Balancing Act

Fed officials face a delicate balance: tariffs and other elements of Trump’s trade agenda are raising costs for manufacturers and consumers, while tighter immigration rules may be reducing labor force growth.

“Even putting the politics aside, it’s a tough, very complex situation,” said Donald Kohn, a former Fed vice chair. He warned that while tariff-driven price spikes may prove temporary, stickier service-sector inflation makes policymakers cautious about cutting too aggressively.

For now, Powell and most of his colleagues appear willing to risk slightly higher inflation to prevent deeper damage to the job market. Whether that gamble pays off could become clearer in the next two months, as the Fed weighs whether to deliver consecutive rate cuts for the first time since 2020.

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