By Ayra Khan
Growboo
The Federal Reserve lowered interest rates by 0.25% on Wednesday, the first cut in nine months, as signs of a cooling labor market outweighed ongoing inflation risks. Policymakers also projected two more cuts this year, shifting their focus from inflation to safeguarding economic growth.
The Fed’s benchmark rate now stands in the 4.00%–4.25% range. Chair Jerome Powell described the move as a “risk-management cut,” emphasizing that while inflation remains elevated, rising unemployment and slower job gains pose greater threats to the economy.
“Recent indicators suggest growth has moderated, job gains have slowed, and the unemployment rate has edged up,” the Fed said in its policy statement.
The decision came amid changes at the central bank, with President Donald Trump’s economic adviser, Stephen Miran, newly confirmed to the Board of Governors. Miran dissented, arguing for a deeper 50-basis-point reduction.
Updated projections show policymakers leaning toward three cuts in 2025, though analysts noted the support for that outlook is fragile. Rates are expected to gradually decline to 3.1% by 2027.
Recent labor data underscored the Fed’s concerns: U.S. payrolls grew by only 22,000 in August—well below expectations—while unemployment rose to 4.3%. Meanwhile, inflation pressures appear to be easing, with the Fed’s preferred measure, core PCE, projected at 3.1% this year before trending toward its 2% target by 2027.
Despite labor headwinds, Fed members upgraded their growth outlook, now forecasting GDP growth of 1.6% in 2025 and slightly higher levels in subsequent years.
Powell stressed that Wednesday’s move should not be seen as the start of an aggressive easing cycle but rather a calibrated adjustment to balance risks.
