Fed Cuts Rates 0.25% in First Policy Shift Since December, Eyed by Analysts for More Easing

In a bold move, the Federal Reserve trimmed its benchmark interest rate by 25 basis points on Wednesday, marking its first rate reduction since December. This adjustment brought the target range to 4.00%-4.25%, and officials signaled the likelihood of further cuts in October and December amid mounting concerns over softening employment conditions.

Fed Chair Jerome Powell emphasized that while inflation remains a concern, the recent slowdown in job growth is drawing sharp attention. Minorities and younger workers, in particular, are feeling disproportionate pressure, with hiring waning and layoffs becoming a more palpable risk. The labor market’s weakening has become a central part of the Fed’s decision calculus.

Notably, Stephen Miran, the newest addition to the Board of Governors, dissented, calling for a larger half-point cut instead of the quarter-point lowering adopted. Miran’s projection also hinted at rates potentially falling below 3.00% by year-end if economic conditions warrant.

Powell acknowledged the complexity facing policymakers: balancing inflation risks with labor market fragility isn’t simple. He described the path ahead as data-driven and fraught with trade-offs, especially given uncertainties around import tariffs and global economic pressures.

The Fed’s updated “dot plot” projections reflect this cautious optimism: while inflation is expected to end the year around 3.0%—still above the target—growth forecasts have ticked up slightly, and unemployment is projected to increase modestly. These estimates, however, are hazy and varied, underscoring internal divisions over the pace and extent of future rate cuts.

Investors reacted with restraint. Despite hopes for aggressive easing, markets were tempered by the Fed’s message: rate cuts are coming, but they will be incremental and dependent on how economic data evolve.