The Federal Reserve announced a reduction of its reference interest rate by 25 basis points to the target range of 4.00%-4.25% in a move to support a weakening labor market in the face of chronic inflation.
The move announced on Wednesday, September 17, marks the first reduction since December and has been in keeping with the changing priorities of the central bank following the economic data which indicates that there are definite signs of cooling.
Recent job numbers indicate that unemployment is stagnating at a rate of 4.3%, the highest since 2021.
In the meantime, inflation has been resistant, remaining at 2.9% per year, which is far above the Fed target of 2%.
Fed Chair Jerome Powell termed the action as a risk-management cut, which indicated greater concern about the risks to employment.
He admitted that the latest tariffs imposed on foreign goods have added to the pressure on prices making it a complicated policy issue.
New Governor Stephen Miran, who had been appointed to the position by Trump, did not vote in agreement with the rate cut, and he instead supported a more substantial cut of 50 points.
The stock gains initially moderated, and massive liquidations in cryptocurrency markets were observed.
According to new forecasts from the Fed, there may be two additional rate cuts made before the end of the year depending on the economic data received.
This delicate balancing act highlights how the Fed is trying to avoid further economic slowdown without triggering inflationary pressure once again.