The US Federal Reserve has lowered interest rates for the first time this year, citing slower job gains and risks to employment. The benchmark lending rate was cut by 25 basis points to a range between 4.0 percent and 4.25 percent. This move is seen as a response to the current economic climate, with policymakers facing pressure from President Donald Trump to stimulate growth.
The decision was supported by 11 out of 12 voting members of the Federal Open Market Committee, with new Fed Governor Stephen Miran being the sole dissenter. Miran, who was sworn in just before the meeting, favored a larger rate reduction of 50 basis points. The Fed also signaled the possibility of two more rate cuts this year, although Chairman Jerome Powell stressed that the central bank is “not on a preset path.”
The rate cut comes as the US economy faces competing pressures, with inflation risks fueled by Trump’s tariffs and a weakening job market. The Fed typically aims to balance these factors, and Powell noted that the central bank was “right to wait and see how tariffs and inflation and the labor market evolved” before making a move.
The Fed’s decision has been made against a backdrop of heightened political scrutiny, with Trump having intensified pressure on the central bank to cut rates. The appointment of Miran, who has been serving in the Trump administration, has also raised concerns about the independence of the Fed. Powell reassured that the central bank remains “strongly committed” to its independence, but the issue is likely to continue to be a point of contention.
The rate cut is significant, as it marks a shift in the Fed’s monetary policy stance. The central bank had previously held rates steady, monitoring the effects of Trump’s tariffs on inflation. With the passthrough of tariffs to consumers being slower and smaller than expected, the Fed has now taken action to support the labor market. The move is seen as a careful balancing act, with the Fed aiming to stimulate growth while keeping inflation in check.
The Fed’s growth forecast for 2025 has been revised upwards to 1.6 percent, while unemployment and inflation forecasts remain unchanged. The central bank will continue to monitor the economy, with Powell cautioning that the Fed’s projections should be seen as probabilities rather than certainties. As the US economy navigates the challenges posed by trade tensions and a slowing job market, the Fed’s decision will be closely watched by investors and policymakers alike.
