The widely expected cut of a quarter percentage point comes amid economic pressures ranging inflation and tariffs to sluggish job growth. Two more cuts are expected before the end of the year.
It cut the benchmark lending rate to a range between 4.0% and 4.25%.
The Fed paused its easing cycle in January due to uncertainty over how President Donald Trump’s import tariffs might affect inflation and the overall economy.
It said Wednesday’s cut was warranted as, “downside risks to employment have risen” even as inflation has “moved up and remains somewhat elevated.”
Although inflation remains slightly above the Fed’s target rate of 2%, data shows hiring has slowed to a halt in recent months, while the unemployment rate has risen.
Lowering interest rates, and reducing borrowing costs, is tool used by central banks to boost hiring and increase consumer spending.
Tension between the White House and the Fed
The new Fed Governor, Stephen Miran, formerly an economic adviser to Trump, voted against the decision, favoring a deeper cut of 50 basis points.
Miran was sworn in earlier this week, amid criticism from Democrats that he would not separate economic decision making from political pressure.
The other 11 voting members of the rate-setting Federal Open Market Committee voted for the quarter-point cut.
Trump has been pushing Federal Reserve Chair Jerome Powell, who acts independently of the White House, to cut interest rates for months.
He has tried to pressure Powell to resign and has openly considered firing him.
Powell said Wednesday the Fed was “right to wait and see how tariffs and inflation and the labor market evolved” before lowering rates.
He added the the central bank was “strongly committed” to maintaining its independence from politics.
On Tuesday, Democrats introduced a Senate bill aimed at reinforcing the separation between the White House and the Federal Reserve, just hours after Miran was sworn in as a Fed governor.
Source: https://www.dw.com/en/us-federal-reserve-cuts-interest-rate-for-first-time-in-2025/a-74033463
