Federal Reserve Cuts Interest Rate for First Time in Nearly a Year

Washington, D.C. — The Federal Reserve announced on Wednesday it has lowered its benchmark interest rate by 0.25 percentage points, marking the first cut since December 2024. The rate now sits between 4% and 4.25%, down from the previous range of 4.25% to 4.5%. The decision comes as the U.S. faces challenges in the labor market, which has shown signs of stagnation.

This rate cut indicates the Fed’s response to slowing job growth, reflecting a broader economic concern. Fed officials have also hinted at two additional cuts in 2025 and one in 2026, although Wall Street had anticipated five reductions over the next two years.

According to the Fed’s economic projections, unemployment is expected to reach 4.5% by the end of this year, while inflation, gauged by Personal Consumption Expenditures (PCE), is anticipated to plateau at 3% in 2025 before declining towards 2% in 2027. Core inflation, which excludes food and energy costs, is forecasted at 3.1% for this year.

“Recent indicators suggest that growth of economic activity moderated in the first half of the year,” the Fed stated in a recent announcement. “Job gains have slowed, and the unemployment rate has edged up but remains low.” This perspective signifies the Fed’s inclination that the job market’s concerns are more pressing than the issue of rising inflation.

Fed Chair Jerome Powell emphasized during a meeting in Wyoming last month that the central bank must navigate these dual dilemmas tactically. “Although labor demand is softening, labor supply issues continue to offset the weakness, and recession risks remain limited for now,” said Seema Shah, chief global strategist at Principal Asset Management.

The cut comes amid significant pressure from political figures, notably President Donald Trump, who has been vocal in criticizing Powell for not cutting rates sooner. Trump has attempted to influence Fed policies by advocating for more substantial rate reductions.

In addition, the confirmation of Stephen Miran, an economic adviser to Trump, to the Fed’s Board of Governors has raised concerns about the Fed’s independence. Miran was the only dissenter against the 0.25 percentage point cut, advocating instead for a larger reduction of 0.50 points.

“The key question for consumers and businesses is whether the Fed trimming borrowing costs for the first time in nearly a year signifies further cuts in 2025 and into 2026,” said Lon Erickson, portfolio manager at Thornburg Investment Management.

As the Federal Reserve prepares for its next meetings scheduled for October and December, economists and analysts will watch closely for indications of future rate adjustments.