US Federal Reserve Makes First Rate Cut Of 2025 On Employment Risks
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...
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President Trump has repeatedly criticized Fed Chair Jerome Powell and advocated for substantial interest rate reductions.
United States:
On Wednesday, the US Federal Reserve implemented its first interest rate cut of the year, highlighting concerns about slowing job growth and employment risks as policymakers experience increased pressure under President Donald Trump's administration.
The central bank reduced the benchmark lending rate by 25 basis points to a range of 4.0 to 4.25 percent, while projecting two additional cuts before year-end.
Newly appointed Fed Governor Stephen Miran, who previously served as an economic adviser to Trump, was the sole dissenter in the decision, preferring a more aggressive 50 basis point reduction.
The remaining 11 voting members of the Federal Open Market Committee (FOMC) supported the quarter-point decrease.
This meeting marked Miran's first participation since being sworn in just before the two-day session began on Tuesday, following his rapid Senate confirmation Monday evening. Prior to joining the Fed, Miran had chaired the White House Council of Economic Advisers.
The central bank faces dual pressures in its rate adjustment strategy, with Trump's extensive tariff policies creating inflation concerns while employment figures weaken.
Typically, the Fed maintains higher rates to control inflation and bring it toward its two-percent target, but may reduce rates to bolster the labor market.
In Wednesday's announcement, the Fed raised its 2025 growth forecast to 1.6 percent from the previous 1.4 percent projection in June.
Unemployment and inflation forecasts remained unchanged.
Trump has escalated his pressure on the Fed throughout the year, repeatedly demanding significant rate cuts and criticizing Fed Chair Jerome Powell.
Beyond appointing Miran to replace a retiring official, Trump attempted to remove Fed Governor Lisa Cook in August, resulting in legal proceedings that could have prevented her participation in this meeting.
Meanwhile, Miran has faced criticism from Democratic lawmakers for taking a leave of absence rather than resigning from his White House position, a decision he attributed to his short term ending January 31.
- Dissents -
Economic analysts had anticipated greater division among FOMC members as they navigate the delicate balance between inflation and labor market risks.
In this instance, employment concerns prevailed, despite inflation remaining above the 2.0 percent target.
In its statement announcing the rate cut, the Fed noted that "downside risks to employment have risen," while inflation has "moved up and remains somewhat elevated."
The statement acknowledged slowing job growth and a slight increase in unemployment, though it emphasized that the rate "remains low."
Attention now shifts to Powell's press conference, scheduled shortly after the rate decision announcement.
The projection of two additional rate cuts this year slightly exceeds previous expectations.
The Fed's last rate reduction occurred in December, with rates held steady throughout this year as officials monitored the effects of Trump's tariffs on inflation.
While the impact has appeared limited thus far, economists warn that the full consequences may not yet be evident.
- 'Political attention' -
The central bank faces heightened scrutiny moving forward.
Miran's confirmation without resigning from the CEA raises concerns about political influence over Fed decisions, according to EY chief economist Gregory Daco in earlier comments to AFP.
Economists will closely monitor Miran's statements and future voting patterns on rate decisions.
Separately, the legal challenge by Cook—the first Black woman to serve on the Fed's board of governors—could have wider implications for the institution.
A federal appeals court ruled Monday that Cook could maintain her position while contesting her removal over alleged mortgage fraud.
The Trump administration intends to appeal this decision, potentially elevating the case to the Supreme Court.
"The backdrop that we're experiencing, where there is increased political attention on the Fed, is concerning," Daco stated.
"History has showed that in times when a central bank is under political influence, the economic outcomes are suboptimal," he added.
Such influence could result in higher inflation, reduced growth, and increased financial market volatility.