Interest rates decreased by the Federal Reserve for the initial time in the current year
Federal Reserve Announces First Interest Rate Cut of the Year
The Federal Reserve announced a quarter-point interest rate cut on Wednesday, marking the first reduction in rates this year. The decision was made during a meeting of the Fed's rate-setting committee, with the interest rate now set at 4% to 4.25%.
The move comes as the United States economy shows signs of slowing, with the labor market appearing to be particularly affected. In August, the country added 22,000 jobs, far below economists' expectations, following a trend of decreasing job growth. So far this year, the economy has added 598,000 jobs, significantly lower than the 1.4 million jobs added during the first eight months of 2024.
The unemployment rate also ticked higher last month, reaching 4.3%, a level not seen since September 2017 outside of the Covid-19 pandemic. Goldman Sachs economists expect further negative revisions to job growth and a rise in the broader measure of labor market slack.
In its statement, the Fed indicated it expects two more indeed cuts this year. This prediction is shared by several Fed officials, who see two additional quarter-point indeed jobs cuts this year and a third in 2026. However, seven of the 12 officials on the Fed's rate-cutting committee indicated that rates should remain unchanged for the rest of the year.
The sole dissenter, Stephen Miran, favored a larger half-point cut. Miran, who is a newly appointed governor and also chairs the White House's Council of Economic Advisers, argued for a stronger response to the economic slowdown. President Donald Trump's two other appointed governors, Michelle Bowman and Christopher Waller, both voted for the quarter-point cut.
Inflation has been creeping up since April, with August's inflation rate increasing from 2.3% to 2.9%. Despite this, the Fed's inflation target is 2%. Inflation is a key factor in the Fed's decision-making process, as it aims to balance the need for economic growth with the need to keep prices stable.
The Fed's rate-setting committee will meet again in October and December, providing further opportunities for interest rate adjustments. As the economy continues to evolve, the Fed will likely monitor economic indicators closely and make decisions accordingly.
