Fed Cuts Interest Rate by 25 Basis Points to 4.00%-4.25% Amid Labor Market Concerns

WASHINGTON, Sept. 17 (Reuters) - The Federal Reserve lowered its benchmark federal funds rate by a quarter point to a range of 4.00%-4.25% on Wednesday, citing a cooling labor market and elevated inflation risks.

The move, the Fed’s first rate cut since December 2024, reflects growing concerns that slower job growth poses downside risks to employment and economic activity even as inflation remains above the 2% target.

Rate Cut Details and Outlook

• Size of Cut: 25 bps reduction, bringing the target range to 4.00%-4.25%.
• Vote: Eleven in favor, one dissent (Stephen Miran preferred a 50 bps cut).
• Forecasts: Policymakers anticipate two more quarter-point cuts before year-end.

Labor Market Weakening

Job gains have moderated sharply in recent months, with August payrolls adding just 22,000 positions-well below expectations-and unemployment edging up to 4.3%. Fed officials signaled that downside risks to employment have increased, prompting the easing decision.

Political and Market Reactions

President Trump’s pressure on the Fed-including public calls for deeper cuts and the appointment of Stephen Miran-has intensified scrutiny of the central bank’s independence. Markets initially rallied on the cut but settled mixed as investors weighed prospects for further easing and the inflation outlook.

Policy Statement Highlights

• Dual Mandate: The Fed remains “strongly committed” to maximum employment and 2% inflation.
• Forward Guidance: Committee will assess incoming data and “evolving outlook” before adjusting policy further.
• Balance Sheet: Continued reduction of Treasury and agency securities holdings will proceed.

What’s Next?

Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET to discuss the decision and economic projections. Attention now turns to October and December meetings, where markets expect additional rate cuts contingent on labor market developments and inflation trends.