After nine months of staying on the sidelines, the Federal Reserve on Sept. 17 announced a quarter-percentage-point cut, likely the first in a series of reductions to usher in lower borrowing rates for consumers.
The rate cut – the Fed’s first since late 2024 – lowers the Fed’s benchmark interest rate to a range of 4% to 4.25%. Officials signaled the possibility of two more rate cuts this year.
Typically, the Fed hikes rates or keeps them steady to tame inflation. The central bank lowers rates to juice the economy. While the Fed previously held back on rate cuts due to inflation concerns, a series of disappointing jobs reports showed a weakening labor market. While there are signs that tariffs are starting to show up in consumer prices, Powell previously said a “reasonable base case” is that tariffs spur a one-time price shift rather than a more persistent inflationary effect.
"Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated," the Fed said in a Sept. 17 statement.
New Fed Governor Stephen Miran dissented, saying he preferred a half-percentage-point cut.
It was the first meeting to include Miran, President Donald Trump’s pick to fill a vacancy on the Federal Reserve Board of Governors. He was narrowly confirmed on Sept. 15. Fed Governor Lisa Cook also participated in the meeting after an appeals court gave her permission to continue her duties as she battles Trump’s move to fire her.
In a related action, the Board voted to approve a quarter percentage point decrease in the primary credit rate to 4.25%.
The Fed is projecting inflation to be higher than previously expected by the end of next year, and says the economy is unlikely to return to the Fed's 2% target until 2028.
"We fully understand and appreciate that we need to remain fully committed to restoring 2% inflation on a sustained basis. And we will do that. At the same time, we've got to weigh the risk to the two goals," Powell said, adding that he believes the risks of higher and more persistent inflation have softened because the labor market is weakening and GDP has slowed.
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