The Federal Reserve cut interest rates by a quarter-percentage point on Wednesday to bolster a weak job market amid unrelenting pressure from President Trump, who has installed a key ally at the central bank.
It is the Fed’s first rate cut in nine months, and lowers the benchmark rate to a range of 4% to 4.25%. The Fed also signaled more rate cuts could come before the end of the year and possibly in 2026.
The vote for the quarter-point cut was 11-1, and the sole dissenter was Mr. Trump’s top economic adviser Stephen Miran, who was sworn in to the Fed’s board of governors by Mr. Trump shortly before their two-day meeting kicked off Tuesday. Mr. Miran advocated for a half-point percentage cut.
Mr. Trump’s two other appointees on the board, Michelle Bowman and Christopher Waller, voted for the quarter-point cut.
The major reason the Fed lowered borrowing costs is concern about a sluggish job market. Job growth was anemic during the summer, with employers hiring a monthly average of 29,000 workers for the three months ending in August, according to the Labor Department.
“In the near term, risks to inflation are titled to the upside and risks to employment to the down side: A challenging situation,” Federal Reserve Chairman Jerome Powell said during a news conference.
Mr. Powell called the labor market “unusual,” noting that fewer firms are hiring, but there are also less workers because of Mr. Trump’s immigration crackdown.
Revised numbers showed the economy lost jobs in June for the first time since December 2020, when the nation was in the throes of the COVID-19 pandemic.
Since January, employers have added fewer jobs than in any year since 2010, when America had 17 million fewer workers. The slow job numbers have been a source of consternation for Mr. Trump, who campaigned on reviving the economy after soaring inflation under President Biden.
The bank’s rate cut shows that its concerns about inflation from Mr. Trump’s tariffs have taken a backseat to worries about a weakening job market.
Stocks were mixed in reaction, with the Dow Jones Industrial Average briefly turning negative before flipping back into positive territory. The Dow closed up 260 points, or 0.5 %, to finish at 46,018 points. The S&P 500 dropped by 0.1% and the tech-heavy NASDAQ Composite fell 0.3%.
Lawmakers on both sides of the aisle immediately politicized the rate cut.
House Ways and Means Committee Chairman Jason Smith, Missouri Republican, said he was glad the Fed was “finally” lowering interest rates.
“The Fed appears to be waking up to reality, but unfortunately their delay has already harmed working families. Recent data showed 911,00 fewer jobs were created at the backend of the Biden presidency than originally understood, revealing the weak economy President Trump inherited from Joe Biden,” he said.
Rep. Brendan Boyle of Pennsylvania, the top Democrat on the House Budget Committee, said the rate cut is proof that Mr. Trump’s economy isn’t doing well and warned that “stagflation,” a combination of high inflation and slow economic growth, is coming.
“The Fed isn’t cutting rates because the economy is strong. It’s cutting them because Donald Trump is recklessly sabotaging it,” he said.
Wednesday’s rate cut is unlikely to give consumers much relief, but members of the Fed’s Open Market Committee projected a median of two more rate cuts before the end of the year and possibly into 2026.
But panel members were divided about how much to cut rates, with nine of its voting and nonvoting officials suggesting two more quarter rate cuts this year. Six members supported keeping rates unchanged for the rest of the year, two called for one rate cut, one called for a rate increase and another called for a 1.25 percentage point reduction.
Mr. Trump has taken several unprecedented steps to compel the Fed to slash borrowing costs. He has tried to fire Fed governor Lisa Cook, accusing her of mortgage fraud. Ms. Cook spent Monday awaiting a ruling from a federal appeals court to determine whether she could attend this week’s Fed meeting; the court ruled in her favor.
Mr. Miran, whom Mr. Trump nominated to an open seat on the board of governors, is aligned with the president on the economy and showed he will press for steeper interest rate cuts that Mr. Trump has demanded.
During his confirmation hearing, Mr. Miran said he supported the central bank’s ability to make independent policy decisions free of political influence. But on Tuesday, Mr. Trump was already salivating at the prospect that his new Fed pick would stand up against Mr. Powell.
“He’ll have a big influence on ’Too late’ getting his rates down,” Mr. Trump said, repeating one of his favorite insults for Mr. Powell.
If Mr. Trump succeeds in replacing Ms. Cook, his appointees would hold a 5-2 majority on the seven-member board. Some Fed watchers say that could seriously compromise the central bank’s ability to make tough decisions free from the short-term political demands of the White House.
The Fed had been wary about cutting interest rates this year, worried that Mr. Trump’s widespread tariffs would reignite inflation. Double-digit tariffs on household goods such as coffee, clothing and small appliances increased the overall cost of living in August by 2.9% compared to a year ago — the largest increase in seven months.
But Mr. Trump’s tariffs, which have been in place in some form for most of the year, have yet to unleash the kind of severe inflationary pressures that some economists have predicted. The White House has insisted foreign exporters, not American companies or consumers, will bear the brunt of the tariff costs.
The rate cut is likely to disappoint Mr. Trump because it’s not nearly as much as he demanded. The president has waged a tireless campaign against Mr. Powell and the Fed board for a “very big cut.” In July, Mr. Trump said the interest rates were “at least” three percentage points too high.
The president has repeatedly insulted Mr. Powell as part of the pressure campaign, calling him a “moron,” “numbskull” and “fool.” He has also accused the Fed of overspending on renovations of its headquarters in Washington.
The president has argued that drastically reducing rates would lower the interest the government pays on the national debt and push down the cost of mortgages and credit card spending. That could help stimulate the economy, he’s said.
However, economists have argued that rapid and deep rate cuts could backfire because it would appear as if the Fed was reacting to mounting pressure from the White House. That would raise questions about its independence and credibility, thus further destabilizing the U.S. economy and spooking investors on Wall Street.
