Fed Cuts Interest Rates on Employment Concerns

The US Federal Reserve on Wednesday lowered interest rates for the first time this year, flagging slower job gains and risks to employment as policymakers face heightened pressure under President Donald Trump.

The Fed cut the benchmark lending rate by 25 basis points, to a range between 4% and 4.25%, while penciling in two more cuts this year.

Central bank chief Jerome Powell stressed Wednesday that further cuts are more of a probability than certainty.

“We always say we're not on a preset path, and we really mean that,” Powell told reporters at a press briefing. “The actual decisions we make are going to be based on the incoming data, the evolving outlook and the balance of risks at the time the decisions are actually made.”

Manufacturers have been pushing for lower rates for more than a year as higher borrowing costs make buying new equipment more expensive. And, more importantly, high rates depress home sales, and home construction plays a massive role in many manufacturing markets – from companies making roofing tiles for roofs to washing machines for new kitchens to pickups for the contractors building or refurbishing homes.

Only new Fed Governor Stephen Miran –  who has been serving as an economic adviser to Trump – voted against the decision. He favored a larger rate reduction of 50 basis points. The other 11 voting members of the rate-setting Federal Open Market Committee (FOMC) voted for the quarter-point cut.

The central bank faces competing pressures in adjusting rates, with Trump's sweeping tariffs fueling inflation risks while the job market weakens.

The Fed typically holds rates at higher levels to bring inflation back to its 2% target, but could slash rates to support the labor market too.

On Wednesday, the Fed lifted its 2025 growth forecast to 1.6% from June’s 1.4% projection. It made no change to its unemployment and inflation forecasts.

Economists had expected more division among the FOMC as policymakers walk a tightrope balancing inflation and labor market risks. This time, employment concerns won out, even as inflation remains above 2%.

The Fed said in a statement announcing its rate cut that “downside risks to employment have risen,” even as inflation has “moved up and remains somewhat elevated.”

It noted that job gains have slowed while the unemployment rate has inched up – even as it “remains low.”

Written by:  AFP and Staff Reporters, for IndustryWeek.