Federal Reserve cuts rates amid weakening job market concerns
Fed cuts policy rate by a quarter of a percentage point. Policymaker predictions indicate two additional cuts for the rest of 2025. Miran disagreed, favouring a half-percentage-point cut. Labour market perils were the primary emphasis of policy decisions.
Quarter-Point Reduction Announced
The Federal Reserve lowered interest rates by 0.25 percentage points on Wednesday, citing growing concerns over a softening U.S. labor market. The move, which brings the benchmark federal funds rate to a 4.00%–4.25% range, marks the first adjustment since December and signals the central bank’s willingness to support growth as job creation slows.
Broad Support, One Dissent
The decision drew broad internal consensus, including from most of President Donald Trump’s central bank appointees. The only dissent came from Stephen Miran, who was sworn in as a Fed governor just a day earlier. Miran, currently on leave from his role as head of the White House’s Council of Economic Advisers, argued for a deeper half-point cut to counter mounting risks.
Focus Shifts from Inflation to Jobs
While the Fed has long emphasized inflation risks, Wednesday’s move highlights a shift in priorities. Chair Jerome Powell underscored the growing fragility of the labor market.
“The labor market is softening and we don’t need it to soften anymore,” Powell said, noting that current job creation is below the break-even rate needed to maintain stable unemployment.
Powell warned that with businesses already slowing hiring, even modest layoffs could push unemployment higher.
Outlook for 2025
New projections released by the Fed show inflation ending the year at 3%, still above the 2% target, but unchanged from June’s forecast. Unemployment is expected to hold steady at 4.5%, while GDP growth estimates ticked slightly higher to 1.6%, up from 1.4%.
Policymakers also projected two more quarter-point cuts at the remaining meetings this year, suggesting a steady easing path to cushion the economy against slowing growth and job losses.
Balancing a Delicate Equation
With inflation risks still present and employment momentum weakening, the Fed faces a difficult balancing act. Powell acknowledged the challenge:
“In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation.”
The decision reflects a central bank increasingly focused on safeguarding jobs, even as inflation remains above target.