The Federal Reserve on Wednesday announced the first interest rate cut of the year as policymakers lowered its benchmark interest rate by 25-basis-points, as signs of a weakening labor force outweighed elevated inflation.
Following the central bank’s decision to cut rates for the first time since December 2024, the federal funds rate will sit at a new range of 4% to 4.25%. The cut comes after the Fed left rates unchanged at its first five meetings this year amid economic uncertainty.
Policymakers have been monitoring economic data which has shown a slowdown in hiring as businesses grapple with shifts in trade and immigration policy, while inflation has remained elevated and trended higher in recent months as tariff-related price hikes filter through into inflation data.
That dynamic has presented a challenge for policymakers in achieving both of the goals of the Fed’s dual mandate to promote maximum employment and stable prices in line with the Fed’s 2% inflation target.
The Federal Open Market Committee (FOMC), which guides the central bank’s monetary policy moves, noted in its announcement that job gains have slowed and the unemployment rate has risen but remains relatively low, while inflation has risen and remains somewhat elevated. The FOMC added that in monitoring both sides of the dual mandate that “downside risks to employment have risen.”
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Federal Reserve Chair Jerome Powell, who will deliver remarks and hold a press conference Wednesday afternoon, has previously said that if indicators around inflation and the labor market are both moving away from those goals, then policymakers will focus on addressing whichever is further from the target.
The Fed has been under pressure from the Trump administration to cut interest rates, with President Donald Trump having repeatedly threatened to fire Powell – though he has since backed off those threats with the chair’s term due to expire in May 2026.
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Trump is also attempting to fire Fed Governor Lisa Cook over allegations of mortgage fraud, though a district court ruling that temporarily blocked the firing was upheld by an appellate court and allowed her to participate in this week’s FOMC meeting. Cook has not been charged with any crimes related to the allegations, which were raised by Trump ally and FHFA Director Bill Pulte.
The Fed’s meeting also saw a new member participate following the resignation of former Fed Governor Adriana Kugler, with Trump appointee Stephen Miran confirmed to the vacancy on Monday in time to participate in the meeting.
This is a developing story. Please check back for updates.
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