Federal Reserve Chair Jerome Powell announced the Fed’s decision on interest rates Wednesday, marking the first cut of the year after months of pressure from Donald Trump to lower borrowing costs.
Policymakers reduced the benchmark federal funds rate by 25 basis points, bringing it to a range of 4% to 4.25%. It was the first cut since December 2024, following five straight meetings earlier this year where rates were held steady amid economic uncertainty.
The move reflects mounting evidence of a cooling labor market even as inflation remains elevated. Businesses have slowed hiring in response to shifting trade and immigration policies, while tariffs have pushed consumer prices higher, complicating the Fed’s pursuit of its dual mandate of maximum employment and price stability.
In its statement, the Federal Open Market Committee noted that job gains have slowed, unemployment has edged higher though still low, and inflation has picked up. The committee warned that “downside risks to employment have risen.”
The vote was 11-1, with new Fed Governor Jeffrey Miran dissenting in favor of a deeper, 50-basis-point cut.
Powell has said the Fed will prioritize whichever side of its mandate drifts further from target, whether it be inflation or employment. Speaking at his press conference, he acknowledged that the economy is losing momentum:
“Overall, the marked slowing in both the supply of and demand for workers is unusual. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said. He added that while inflation has fallen sharply since mid-2022, it “remains somewhat elevated” compared to the Fed’s 2% goal.