The Federal Reserve lowered interest rates by a quarter percentage point Wednesday and signaled two additional cuts before year-end, seeking to shore up a slowing labor market even as inflation remains elevated.
In an 11-to-1 vote, the Federal Open Market Committee moved the benchmark federal funds rate to a target range of 4.00% to 4.25%, its first cut since November 2024. Newly installed Governor Stephen Miran dissented, favoring a larger half-point reduction.
"Job gains have slowed, and the unemployment rate has edged up but remains low," the committee said in its post-meeting statement, adding that inflation "has moved up and remains somewhat elevated." The statement also noted that "uncertainty about the economic outlook remains elevated" and that "downside risks to employment have risen."
Fed Chair Jerome Powell warned that the labor market has softened considerably. "The marked slowing in both the supply of and demand for workers is unusual in this less dynamic and somewhat softer labor market," Powell said at a press conference. "The downside risks to employment appear to have risen."
The committee's updated "dot plot" showed 10 of 19 participants favoring two more quarter-point cuts at the Fed's October and December meetings, while nine projected just one additional cut. One participant signaled no cuts at all, and another - likely Miran - projected a total of 1.25 percentage points in easing this year, which would take the policy rate to 2.875% by December.
Market reaction was mixed: the Dow Jones Industrial Average gained more than 300 points, but the S&P 500 and Nasdaq Composite closed lower. Treasury yields slipped modestly, with the 10-year note hovering near 4.02%.
Governors Michelle Bowman and Christopher Waller, both Trump appointees who had previously dissented against holding rates steady, supported the quarter-point cut. Governor Lisa Cook, whom the White House is attempting to remove over alleged mortgage irregularities, also voted in favor after a federal appeals court ruled she could remain on the board while litigation continues.
Political pressure on the Fed has mounted in recent months, with President Donald Trump calling for faster and deeper cuts to bolster housing and reduce government financing costs. Miran, a former top White House economist, has openly advocated for significantly lower rates and is viewed as a reliable vote for Trump's preferred policy path.
Economic data have painted a mixed picture: GDP growth is running slightly ahead of earlier projections, and consumer spending remains strong. But the unemployment rate climbed to 4.3% in August, the highest since late 2021, and a Bureau of Labor Statistics revision showed the economy created nearly a million fewer jobs than initially reported in the year through March 2025.
"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," said Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management. "We think it would take a significant upside surprise in inflation or labor market rebound to take the Fed off its current easing trajectory."
Inflation remains sticky, with the Consumer Price Index up 2.9% in August from a year earlier, compared with 2.7% in July. Powell said risks are "tilted to the upside" for inflation, making the Fed's balancing act between price stability and employment more difficult.
