Fed Cuts Rates Quarter Point, Signals Two More Rat

Fed Cuts Rates Quarter Point, Signals Two More Rate Cuts By Year-End

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The FOMC voted 11-1 to cut the target range for the federal funds rate by -0.25% to 4%-4.25%, with one official favoring a larger cut.

Policymakers updated their economic projections and now see two additional quarter-point cuts this year, with one quarter-point cut forecast in 2026 and one in 2027.

In their post-meeting statement, policymakers pointed to growing signs of weakness in the labor market to justify their first rate cut since December, but also acknowledged that inflation has “moved up and remains somewhat elevated.”

Officials said the unemployment rate had “edged up but remains low,” adding that “downside risks to employment have risen.”

Only one official, the newly-sworn-in Stephen Miran, voted against the decision. He favored a larger, half-point cut. Governors Michelle Bowman and Christopher Waller, who dissented in July in favor of a cut, agreed this time with the quarter-point move.

The cut was widely expected amid signs the central bank’s concerns are shifting toward employment and away from inflation, following a sharp slowdown in hiring over the last several months.

In their economic forecast, policymakers slightly upgraded their median outlook for growth in 2026. They also forecast modestly higher inflation next year.

A report released earlier this month showed hiring continued to slow in August, and the unemployment rate rose to 4.3%, the highest in almost four years.

But inflation has also accelerated in the past few months as companies increasingly passed tariffs on to consumers. The Fed’s preferred gauge of prices rose 2.6% in the year through July, and analysts expect the August reading due later this month to show another uptick, according to a Bloomberg survey.

While the impact of import duties has been more muted than many expected, some Fed officials remain concerned the tariffs haven’t fully worked through the economy, and could still generate a persistent impact on inflation, rather than represent a one-off adjustment. That has contributed to the central bank’s cautious approach toward rate cuts this year.

Others like Waller and Bowman, both of whom were appointed by President Trump in his first term, see the likely impact as temporary and have argued the Fed should lower rates more quickly to a neutral level, where they are neither weighing on nor stimulating the economy.

The rate cut also comes amid extraordinary political pressure for lower borrowing costs. Trump has repeatedly demanded drastic rate reductions, and is currently attempting to fire a Fed Governor, Lisa Cook. His newest appointee, Miran, was sworn in Tuesday morning, just in time to join the meeting.

Here is a strike-through comparison of today’s statement vs the Fed’s July 30 statement.