The US Federal Reserve is currently 4.00% to 4.25% as interest rates are reduced by a quarter point, and slower labor markets will hinder economic growth.
The US Central Bank announced its decision Wednesday afternoon.
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Economists widely anticipated a 25 basis point reduction in CME FedWatch (a group that tracks the probability of monetary policy decisions). One base point is one hundredth of one percent point.
Before Wednesday, the Fed scored its final cut rate with 25 basis points in December. This was the third time last year, raising the benchmark rate from 4.25% to 4.50%, and has been stable ever since.
Federal Reserve Chairman Jerome Powell stressed that economic uncertainty kept the Fed carefully, arguing that maintaining interest rates gave policymakers flexibility as conditions changed.
The cut comes as a response to changes in the economic situation, following many weak employment reports showing slower labor market growth and slight increases in inflationary pressures.
“Recent indicators suggest that economic activity growth has eased in the first half of the year. Job acquisition slowed, unemployment rates rose but remained low. Inflation has risen and remains somewhat higher.”
“Uncertainty about the economic outlook continues to rise. The committee is paying attention to the double mission of rising negatives on employment and the risks to both sides of judges.”
At a press conference after the rate cuts, Powell told reporters that a decline in both supply and demand for workers was “unusual” and that he attributed to tariffs and immigration policies.
“The labor market is really cool,” Powell said.
In its news release, the Fed showed that it is open to further reduce interest rates in “if risks arise” that could hinder the double mission of achieving maximum employment and reducing inflation to 2%.
Investors have been waiting for indications from the central bank about whether to cut interest rates two or three times for the remainder of the year, as the costs of goods and services increase under tax-driven pressure, while economic uncertainty increases in the US labor market and the broader economy.
Political pressure
The latest cuts have come at a time of growing scrutiny and pressure on the Fed, and have long emphasized their independence from political pressure. But for months, US President Donald Trump has been yelling Powell “Powell too late” about his careful approach to cutting back on the central bank.
At the same time, the Republican-led White House attempted to expel Gov. Lisa Cook’s federal government, appointed by former Democrat Joe Biden.
On Monday, a US court of appeals blocked Trump from removing her. The administration said it challenges the ruling.
“The president has legally eliminated Lisa Cook for the cause. The administration has appealed this decision and is looking forward to the ultimate victory on the issue,” White House spokesman Kush Desai said Tuesday.
That same day, Stephen Milan, chairman of Trump’s Economic Advisory Council, was sworn in to fill a temporary Federal Reserve seat, which was vacant by Adriana Kugler until January, and the White House searched for a permanent replacement.
Milan promised to act independently, but his close relationship with the Trump administration and his work as a conservative Manhattan Institute sought questions. His Senate confirmations were between 47 and 48, mainly along the party line, with Sen. Lisa Markowski of Alaska being the only Republican opposed to him.
On Monday, Senate minority leader Chuck Schumer called Milan “just a mouthpiece for Donald Trump at the Fed.”
A Fed news release on Wednesday showed that Miran pushed a bigger rate cut of 50 basis points, while others voted for a 25 basis point cut.
“We had no extensive support at all about today’s 50 basis point cut,” Powell told reporters in response to questions.
Powell was forced to see whether Milan, who maintains his position in the White House, would undermine the bank’s political independence. However, he declined to comment, saying the Fed maintains its independence.
The market responds
As of 3pm (7pm GMT) in New York, the US market is mixed. The S&P 500 dropped by 0.6% and the Nasdaq fell by 1%, while the Dow Jones industrial average rose by 0.4%.
