The Federal Reserve has announced a cut to key interest rates today, the first cut in almost a year.
BREAKING: The Federal Reserve is cutting interest rates by 25 basis points, the first rate cut since December 2024 pic.twitter.com/WHk1LqHeJo
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The Federal Reserve on Wednesday announced the first interest rate cut of the year as policymakers lowered its benchmark interest rate by 25-basis-points, as signs of a weakening labor force outweighed elevated inflation.
Following the central bank's decision to cut rates for the first time since December 2024, the federal funds rate will sit at a new range of 4% to 4.25%. The cut comes after the Fed left rates unchanged at its first five meetings this year amid economic uncertainty.
Policymakers have been monitoring economic data which has shown a slowdown in hiring as businesses grapple with shifts in trade and immigration policy, while inflation has remained elevated and trended higher in recent months as tariff-related price hikes filter through into inflation data.
That dynamic has presented a challenge for policymakers in achieving both of the goals of the Fed's dual mandate to promote maximum employment and stable prices in line with the Fed's 2% inflation target.
The move comes less than a day after reports that Fed Chair Jerome Powell would make the rate cut today. James Fishback, the CEO of Invest Azoria, predicted the cut but said the move is "That's too little, too late."
The New York Times also reported on the rate cut:
The Federal Reserve lowered interest rates by a quarter of a percentage point on Wednesday as officials signaled that two more cuts could follow this year in light of rising risks confronting the labor market.
The decision to lower borrowing costs for the first time since December shifts interest rates to a range of 4 percent to 4.25 percent. The decision was not unanimously supported, the second straight meeting that featured at least one dissent from a member of the Board of Governors.
Powell was expected to give a press conference about the rate cut this afternoon.
UPDATES:
During his press conference, Powell noted there was a decline in the growth of the labor force due to lower immigration and a decrease in labor market participation, noting that "While the unemployment rate remains low, it has edged up. Job gains have slowed and downside risks to employment have risen. At the same time, inflation has risen recently and remains somewhat elevated."
He also noted, "The slowdown in both the supply of and demand for workers is unusual. The downside risks to employment have risen" and that while inflation on goods has risen, disinflation for services continues.
After his opening statement, Powell took questions from the press.
Powell told reporters that the impacts of inflation on prices and the economy remain unseen, but he expects a "one-time shift in the price level" and said the effects are "not very large" at this point.
He also reiterated that the supply of workers has decreased, likely due to significant declines in immigration, and that participation in the labor market has also decreased. Powell deflected when asked if tariffs were impacting employment, saying it's “certainly possible" but more likely caused by immigration declines.
When asked if there was support for a larger basis point cut, Powell said there was no "widespread support" on such a move at this time.
For those keeping an eye on the stock market, the New York Times reported, "Stocks have drifted lower while Powell has been speaking. But the moves are still very modest. Bond yields, too, remain contained. This could reflect investors making small shifts in reaction to Powell’s comments but it could just as easily be the typical ebb and flow of trading."
When asked what the Fed would do if prices of goods continue to go up, Powell said the Fed forecasts a "one-time price increase" from tariffs and not ongoing inflation.
Powell said any future cuts are on a "meeting by meeting" basis, with projections showing two more rate cuts this year.
One reporter asked about Fed governor Lisa Cook, and Powell replied that "I see it as a court case that it would be inappropriate for me to comment on." Powell also declined to comment on Treasury Secretary Scott Bessent’s call for a review of the Fed.
Throughout the press conference, Powell emphasized the Fed is focused on the data as part of its "public mission."