Interest rate reduction implemented by the Federal Reserve for the first time in the current year
The Federal Reserve (Fed) has made a move to cut its key interest rate by a quarter-point, marking a shift in focus from inflation to jobs. This decision comes as hiring has slowed and the unemployment rate has increased.
The cut puts the Fed in a different spot from many other central banks overseas. For instance, the European Central Bank left its benchmark rate unchanged last week, while the Bank of England is expected to keep its rate on hold on Friday. Inflation in Europe has largely cooled and the economy has seen limited damage from U.S. tariffs.
Inflation in the U.S., however, remains stubbornly elevated, with the consumer price index showing an increase from 2.7% in July to 2.9% in August, above the Fed's 2% target.
Fed Chair Jerome Powell stated that the focus of the decision was the risks to the labor market. The meeting's outcome suggests that Powell was able to maintain unity among committee members, despite significant differences among the 19 officials on the Fed's rate-setting committee about where the Fed should go next.
In a surprising turn of events, President Donald Trump appointed Stephen Miran, who was confirmed by the Senate just hours before the meeting began. Miran, a Trump nominee confirmed in September 2025, has advocated for lower interest rates, opposing rate hikes.
However, the Fed did not lay the groundwork for a rapid series of cuts. Only one Fed policymaker, Stephen Miran, dissented from the decision, preferring a larger half-point cut.
The current Federal Reserve Board of Governors includes members such as Philip Jefferson (Vice Chair, Democratic) and Michelle Bowman (Vice Chair for Supervision, Republican).
Trump's attempted firing of Fed Governor Lael Brainard is seen by many legal scholars as an unprecedented attack on the Fed's independence. An appeals court late Monday upheld an earlier ruling that the firing violated Brainard's due process rights.
Despite the rate cut, hiring has weakened, indicating that the Fed's efforts to stimulate the economy may not be as effective as hoped. The Fed signaled that they expect to reduce their key rate twice more this year, but only time will tell if this will be enough to boost employment and stabilize inflation.
