The United States Federal Reserve will cut interest rates by a quarter of a percentage point, so they will now be between 4.00 percent and 4.25 percent, as a slowing labour market stalls economic growth.
The Fed, the US central bank, announced its decision on Wednesday afternoon.
Economists had widely expected a 25 basis point cut, with CME FedWatch — a group that tracks probability of monetary policy decisions — putting the odds at 96 percent. One basis point is one-hundredth of one percentage point.
Before Wednesday, the Fed had last cut rates in December by 25 basis points, the third cut last year, taking its benchmark rate to between 4.25 percent and 4.50 percent, where it had held steady since.
Federal Reserve Chairman Jerome Powell has emphasised that uncertainty in the economy has kept the Fed cautious, arguing that maintaining rates gave policymakers flexibility as conditions shifted.
The cut comes as a response to shifting economic conditions, following a slew of weak jobs reports showing a slowdown in growth in the labour market and a slight uptick in inflationary pressures.
“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 central bank said in a press release.
“Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
In a press conference after the rate cut, Powell told reporters that a decline in both the supply and demand of workers is “unusual”, which he attributed to tariff and immigration policies.
“The labour market is really cooling off,” Powell said.
In its news release, the Fed also indicated that it was open to further cuts to the interest rate “as appropriate if risks emerge” that could impede its dual mandate of achieving maximum employment and lowering inflation to 2 percent.
Investors had been waiting for indications from the central bank on whether it will cut interest rates two or three times for the rest of the year as economic uncertainty weighs on the US labour market and the broader economy while the costs of goods and services increase under tariff-driven pressures.
Political pressure
The latest cut comes at a time of heightened scrutiny and pressure on the Fed, which has long emphasised its independence from political pressure. But for months, US President Donald Trump has publicly attacked the central bank, mocking Powell as “too late Powell” over his cautious approach to cutting rates.
At the same time, the Republican-led White House has sought to oust Fed Governor Lisa Cook, who was appointed by former US President Joe Biden, a Democrat, citing alleged mortgage fraud.
On Monday, a US appeals court blocked Trump from removing her. The administration has said it will challenge the ruling.
“The president lawfully removed Lisa Cook for cause. The administration will appeal this decision and looks forward to ultimate victory on the issue,” White House spokesman Kush Desai said on Tuesday.
That same day, Stephen Miran, chair of Trump’s Council of Economic Advisors, was sworn in to fill a temporary Fed seat left vacant by Adriana Kugler until January, while the White House searches for a permanent replacement.
Miran pledged to act independently, but his close ties to the Trump administration — and his work as a fellow at the conservative Manhattan Institute — have raised doubts. His Senate confirmation fell largely along party lines, 47–48, and Senator Lisa Murkowski of Alaska was the only Republican to oppose him.
On Monday, Senate Minority Leader Chuck Schumer called Miran “nothing more than Donald Trump’s mouthpiece at the Fed”.
The Fed’s news release on Wednesday showed that Miran had pushed for a bigger rate cut of 50 basis points while the other members voted for a cut of 25 basis points.
“There wasn’t widespread support at all for a 50 basis point cut today,” Powell told reporters in response to a question.
Powell was pressed on whether Miran, who has kept his position at the White House, would undermine the bank’s political independence. But he declined to comment apart from saying that the Fed maintains its independence.
Markets respond
As of 3pm in New York (19:00 GMT), US markets are mixed. The S&P 500 slumped by 0.6 percent and the Nasdaq by 1 percent, but the Dow Jones Industrial Average is up 0.4 percent.
