US Fed makes first rate cut of this year

The U.S. Federal Reserve on Wednesday decided to lower the target range for the federal funds interest rate by 25 basis points to 4 to 4.25 percent, the first rate cut since December 2024. Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated, the Federal Open Market Committee (FOMC), the principal monetary policymaking body of the Federal Reserve System, said in a statement after a policy meeting.

"In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 percent," the statement said. "In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks." The FOMC reiterated its commitment to supporting maximum employment and returning inflation to its 2 percent objective.

All 12 members of the FOMC, including Lisa Cook and Stephen Miran, attended the meeting. While 11 members voted for the 25-basis-point cut, Miran voted against the action, preferring a 50-basis-point cut. On Monday, a U.S. federal appeals court rejected President Donald Trump's bid to remove Federal Reserve governor Lisa Cook, just hours before the Fed's two-day meeting was set to kick off. Also the same day, the U.S. Senate narrowly confirmed Stephen Miran, one of Trump's top economic advisers, to serve on the Federal Reserve Board of Governors, succeeding Adriana Kugler who resigned from the board in early August. Miran was sworn in on Tuesday and is expected to serve through Kugler's remaining term ending on Jan. 31, 2026.

Along with its policy decision, the FOMC released updated economic projections, forecasting U.S. real GDP growth of 1.6 percent in 2025, 1.8 percent in 2026, 1.9 percent in 2027, and 1.8 percent in 2028. The figures are slightly above the June projections of 1.4 percent, 1.6 percent, and 1.8 percent for 2025 through 2027, respectively.

The Fed projected the U.S. median unemployment rate would remain at 4.5 percent in 2025, ease to 4.4 percent in 2026, and decline further to 4.3 percent in 2027."We see where we are now, and we took that appropriate action today," said Fed Chair Jerome Powell at a press conference after the meeting. Lowering interest rates will help a struggling labor market, where some people are having a hard time finding jobs, Powell said. "There are no risk-free paths now," he said.

Powell also expressed concern that the tariffs put in place by the Trump administration could continue to build on goods prices through the rest of this year and into 2026. But the overall effects of tariffs on economic activity and inflation remain to be seen. Talking of the Fed's independence, Powell said: "It's deeply in our culture to do our work based on the incoming data and never consider anything else," adding "I would say we're doing our work exactly as we always have now." For future Fed actions, Powell said the Fed was "right to wait" and did not need to "move quickly" on rates.