WASHINGTON – The Federal Reserve on Wednesday approved a widely anticipated interest rate cut, indicating that two more are ongoing before the end of the year as concerns grow in the U.S. labor market despite inflation still airborne.
With an 11-1 voting signal with fewer dissent than Wall Street had expected, the Federal Open Market Committee reduced the benchmark’s late rate by a quarter point. This decision will result in an overnight funding rate in the range of 4.00% to 4.25%.
The newly established governor Stephen Milan was the only policymaker to vote against the quarterpoint move, advocating a half-point cut instead.
Governors Michelle Bowman and Christopher Waller considered additional dissenters who voted for a 25 basis point cut. All were appointed by President Donald Trump. President Donald Trump cut the Fed all summer to not only do traditional quarterpoint moves but also to quickly and aggressively lower Fed funds.
In a statement after the meeting, the committee once again characterized economic activity as “easy” but added a language that said “work profits have slowed down”, and inflation has risen and continues to rise slightly.” Employment growth and higher inflation are at odds with the Fed’s twin goals of stable prices and full employment.
“Uncertainty about the economic outlook continues to rise,” the Fed statement said. “The committee is paying attention to the double mission and the risks to both sides of judges that the downsides to employment have risen.”
After the decision was announced, stocks were volatile and mixed with large averages after Chairman Jerome Powell saw the cuts as “risk management.” The Treasury yields are also mixed, causing short-term problems, but otherwise it is rising.
“I don’t think that’s risk management. I think that’s what pilots the ship,” said Dan North, chief economist at Allianz Trade North America. “I think we’re definitely a move we’re trying to manage the economy. It’s not just saying, ‘Okay, I’m going to take this little cut here and use it to prevent something from getting worse.’ ”
Wide view
At a post-meeting press conference, Powell reiterated his concerns about the labor market.
“It’s rare in this dynamic, rather soft labor market that is noticeable slowing in both supply and demand for workers,” he said. “It appears that the downside to employment has risen.”
Powell added the decision to place monetary policy in a “more neutral” position, in contrast to its moderately restrictive previous characteristics.
In addition to the fee decision, authorities closely monitored the “dot plot” of individual expectations, pointing to two more cuts by the end of the year. However, the grid showed one dot in this year’s additional cut, perhaps Milan’s disparity, perhaps Milan’s.
The plot was done anonymously, with one dot for each conference attendant, but Milan was a much lower fee supporter. Nine of the 19 participants showed a decrease of just one more time this year, while 10 saw two. This shows the movement at the October and December meetings. One source did not want cuts, including Wednesday.
“Currently, the majority of FOMC are targeting two more cuts this year, indicating that the committee pigeons are currently in the driver’s seat,” said Simon Dangor, head of bond macro strategy at Goldman Sachs Asset Management. “I think inflation or labor market rebounding requires a huge, surprising surprise to rob the current mitigation trajectory.”
This plot shows that one was cut in 2026 and is significantly slower than the current market prices of the three. Traders were fully priced in this week’s move. Authorities also showed another decline in 2027 as the Fed approaches a long-term neutrality rate of 3%. Half a dozen officials saw the long-term rate below the central neutral level.
The forecasts released following the general economic situation meeting showed slightly faster economic growth than forecast in June, but the outlook for unemployment and inflation remained unchanged.
Politics in the air
A surprising level of political drama preceded the meeting, especially for institutions that generally run quietly in business and have few voices of dissent.
A year ago, contrary to similar concerns that a gradual rise in unemployment could indicate a wider decline, the FOMC approved a half-cutting jumbo, which was politically motivated to affect presidential elections in favour of Democratic opponent Kamala Harris.
Trump’s federal government and Milan’s appointment Hector questioned the traditional independence that the central bank had from political influence. Milan has also openly criticised Powell and his colleagues, generally seen as a vote of loyalty to the president and his desire for significantly lower fees.
The president has said lower fees are needed to strengthen the mo-death housing market and reduce government debt financing costs.
However, Powell said there was no “wide range of support” due to the half cuts at the meeting.
Conflict signals
There was an additional layer of political conspiracy this week as the court prevented Trump from eliminating Governor Lisa Cook, an appointee under former President Joe Biden. The White House accused the chef of mortgage fraud, which included federally-supported loans received for the home she purchased, although no fees were brought in. Cook denied the charges.
Cook was among those who joined the majority in the quartercut vote.
Recent signals show that economic growth is robust and consumer spending exceeds forecasts despite the labor market being the point of competition.
In terms of employment, the unemployment rate in August reached 4.3%, still relatively tame by historical standards, but it is the highest since October 2021. Job creation has stagnated this year, and a recent update from the Bureau of Labor Statistics shows that the economy has generated nearly 1 million jobs in the 12 months prior to March 2025 than was originally reported.
In particular, Waller has expressed concern that the Fed should relax its policy now to avoid future issues in the labor market. His name is also included in the mix as a potential successor to Powell’s successor, which expires in May 2026.
