US Fed cuts rates by quarter point, signals steady reductions ahead
WASHINGTON: The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday (Sep 17) and signalled it would steadily lower borrowing costs for the rest of the year, responding to weakness in the job market in a move that won support from most of President Donald Trump’s central bank appointees.
Only new governor Stephen Miran, who joined the Fed on Tuesday and is on leave as head of the White House’s Council of Economic Advisers, dissented in favour of a half-point cut.
The rate cut, along with projections showing two more quarter-point reductions are anticipated at the remaining two policy meetings this year, indicates Fed officials have begun to downplay the risk that the administration’s trade policies will stoke persistent inflation. They are now more concerned about weakening growth and the likelihood of rising unemployment.
The move, the first by the policy-setting Federal Open Market Committee since December, lowered the policy rate to the 4.00% to 4.25% range.
“The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen,” the Fed said in its policy statement. “Job gains have slowed, and the unemployment rate has edged up.”
New economic projections showed policymakers at the median still see inflation ending this year at 3%, above the central bank’s 2% target, a projection unchanged from June. The unemployment forecast was steady at 4.5%, while expected economic growth ticked up to 1.6% from 1.4%.
Stocks turned modestly higher after the decision, while the dollar fell against a basket of major currencies. Treasury yields were little changed, and futures markets priced in a more than 90 per cent chance of another cut at the Fed’s next meeting in late October.
STAGFLATION RISK EASING
Compared to the stagflationary risks flagged in June, when the Fed slowed cuts to head off inflation, the new projections show officials believe they can head off any rise in unemployment with a faster pace of reductions while inflation eases slowly next year.
Fed policymakers have gradually warmed to the idea that Trump’s tariffs would have only a temporary impact on inflation, and the latest forecasts are consistent with that view.
The shift to a more consistent pace of cuts was backed by Fed governor Christopher Waller and Vice Chair for Supervision Michelle Bowman, Trump appointees who dissented in July when the Fed left rates unchanged.
MIRAN DISSENTS
Miran dissented over the latest cut and appears to have pencilled in the steepest reductions in projections issued after he joined the board. In the new “dot plot”, one forecast of 2.875% for end-2025 stood out as being three-quarters of a percentage point below the next lowest. Trump has demanded steep cuts.
Among those voting in favour of Wednesday’s move was Fed governor Lisa Cook, who attended the meeting despite Trump’s effort to fire her. Two courts have upheld her challenge to his attempted dismissal.
