WASHINGTON: The US Federal Reserve on Wednesday delivered a widely anticipated interest rate cut, lowering its benchmark lending rate by 25 basis points and indicating that two more cuts are likely before the year ends.
The decision comes amid mounting concerns over a weakening labour market and stubbornly elevated inflation.
In an 11-1 vote, the Federal Open Market Committee (FOMC) reduced the federal funds rate to a new range of 4-4.25 per cent. The only dissenting vote came from newly appointed Governor Stephen Miran, who pushed for a deeper 50 basis point (bps) cut.
Despite speculation about possible divisions within the committee, particularly from Trump-appointed governors Michelle Bowman and Christopher Waller, both supported the quarter-point reduction.
Their alignment with the majority signalled broader agreement on the need to ease policy, even if the pace remains cautious.
Alongside the rate cut, Fed officials released updated projections suggesting two more cuts are likely this year. The so-called dot plot — which charts individual policymakers’ expectations — showed a split view, with some members favouring just one more cut and others supporting a total of three.
One participant, likely Miran, indicated support for as much as 125 basis points in cuts this year.
Two further cuts
“A majority of the FOMC is now targeting two further cuts this year, indicating that the doves on the committee are now in the driver’s seat,” Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management was quoted as saying. “It would take a significant upside surprise in inflation or labour market strength to reverse that course.”
The Fed’s policy statement reflected a more cautious tone on the economic outlook. It noted that economic activity has “moderated,” job gains have slowed, and inflation “remains somewhat elevated.” These developments suggest growing tension between the Fed’s dual mandate — controlling inflation while supporting full employment.
At his post-meeting press conference, Chair Jerome Powell highlighted the shifting dynamics in the labour market.
“The marked slowing in both the supply of and demand for workers is unusual,” Powell said. “The downside risks to employment appear to have risen.”
Recent labour market data backs those concerns. The unemployment rate rose to 4.3 per cent in August, the highest since October 2021. Job creation has been sluggish throughout the year, and a major downward revision from the Bureau of Labour Statistics revealed that the US economy created nearly one million fewer jobs in the 12 months through March than originally reported.
Still, consumer spending has remained strong, and updated Fed forecasts show slightly stronger GDP growth than previously projected, while unemployment and inflation forecasts remain unchanged.
This week’s meeting also came against a backdrop of political drama. Miran, the only dissenting voter, is a vocal advocate for more aggressive rate cuts and has been critical of Powell’s leadership. His appointment by President Donald Trump was widely viewed as an effort to pressure the Fed into delivering deeper cuts.
Central bank faces growing scrutiny
The central bank has faced growing scrutiny over its independence, particularly as Trump has stepped up calls for lower interest rates to boost housing demand and reduce federal borrowing costs.
Those tensions intensified further this week when a court blocked Trump from removing Governor Lisa Cook, a Biden-era appointee. Cook, who has been accused — but not charged — in an alleged mortgage fraud case, voted in favour of the rate cut.
Governor Waller, who supported the move, has also expressed concerns about the job market and is often mentioned as a potential successor to Powell when his term ends in May 2026.
Markets had largely priced in Wednesday’s move. The Dow Jones Industrial Average rose more than 300 points following the announcement, while the S&P 500 and Nasdaq closed slightly lower. Treasury yields edged down as investors digested the Fed’s more dovish tone.
With two more meetings left in 2025 — October and December — the Fed appears to be laying the groundwork for further easing. Much will depend on how the labor market and inflation evolve over the coming months.
