Federal Reserve Delivers First Rate Cut of Trump’s Second Term

 

The United States Federal Reserve lowered its benchmark interest rate by 25 basis points, setting the target range between 4.00 and 4.25 percent. This marks the first rate reduction since December 2024 and comes at the start of President Donald Trump’s second term.

 

The Federal Open Market Committee voted 11 to 1 in favor of the move. Newly appointed Governor Stephen Miran stood out as the lone dissenter, calling for a deeper half-point cut. Governors Michelle Bowman and Christopher Waller, who had previously pressed for earlier easing, supported the quarter-point reduction in this round.

 

Labour Market Signs Weaken

 

The Fed noted that economic activity has lost some momentum during the first half of the year. Hiring has slowed, the unemployment rate has inched higher while still remaining low, and inflation continues to run above comfort levels. Policymakers stressed that risks to employment have become more pronounced, justifying the policy adjustment.

 

Fresh projections released alongside the decision showed expectations for three rate cuts in 2025, compared with two in the June forecast. Officials anticipate two more reductions before year-end, with further moves planned for 2026 and 2027. Inflation is projected to stand at 3.1 percent by the close of 2025, unchanged from earlier estimates, while growth forecasts improved slightly to 1.6 percent for 2025 and 1.8 percent for 2026.

 

Powell Underlines Independence and Job Concerns

 

In his press briefing, Fed Chair Jerome Powell described the quarter-point adjustment as a “risk management cut.” He emphasized that job creation has slowed to a pace below what is needed to keep unemployment stable. Powell warned that the labor market is softening and urged against further weakening.

 

He also reaffirmed the central bank’s independence, rejecting the idea that political pressures play any role in decision-making. Powell declined to comment on President Trump’s push to dismiss Governor Lisa Cook or on questions regarding his own role after his term expires in May 2026.

 

On inflation, Powell said that while risks have eased somewhat since April, pressures from rising goods prices remain. Tariffs are contributing to higher costs, though he suggested this effect may be temporary. Consumers, he added, have felt only limited impact so far because businesses have absorbed part of the burden.

 

Markets React Calmly

 

The market response was subdued as traders had already factored in the policy shift. The Dow Jones Industrial Average gained around 260 points, or half a percent, after a choppy session. The S&P 500 ended nearly flat, while the Nasdaq slipped slightly. Bond yields pushed higher, with the 10-year yield at 4.05 percent and the 2-year at 3.52 percent. The US dollar also strengthened modestly.