The Federal Reserve cut its target interest rate by a quarter point Wednesday, reacting to weak job creation over the summer — against the backdrop of high drama over the central bank's leadership.
Why it matters: With President Trump clamoring for cheaper money, policymakers delivered the first rate cut of the year. But new projections showed little appetite for the deeper rate cuts the president seeks.
- A dissent from a new Trump appointee to the Fed shows growing divides within the world's most important central bank.
Driving the news: The policy-setting Federal Open Market Committee lowered the federal funds rate to a range of 4% to 4.25%, adjusting rates for the first time since December.
- "Job gains have slowed, and the unemployment rate has edged up but remains low," the committee said in a statement. "Inflation has moved up and remains somewhat elevated."
What they're saying: "I think you can think of this as a 'risk management' rate cut," Fed chair Jerome Powell said at a press conference on Wednesday.
- Dramatic revisions in job gains "suggest that the labor market is really cooling off, and it's time to take that into account in our policy," Powell said.
- The stock market, which rose immediately after the decision, briefly turned negative after Powell's gloomier tone about the economy.
The intrigue: Stephen Miran, who was confirmed as a Fed governor Monday evening and is on leave of absence from his job as the top White House economist, dissented, preferring a half-point rate cut.
- Powell told reporters that there was not much support among other Fed officials for a larger, half-point cut: "You tend to do that at a time when you feel policy and needs to move quickly to a new place ... That's not at all what I feel."
- Projections showed that the median Fed official anticipated two more cuts will be warranted this year, but only one additional rate cut in 2026 — not the multiple percentage points worth of rate cuts that Trump has called for.
Between the lines: The projections suggests there is consensus at the Fed toward reducing rates by a quarter-point at each of its remaining meetings this year.
- One official — unnamed in the projections but almost certainly Miran — saw a significant reduction in rates, about 1.25 percentage point, by yearend.
- Two other Trump appointees to the board, Christopher Waller and Michelle Bowman, supported the quarter-point rate cut. Both had dissented against the decision in July to leave rates steady.
- Governor Lisa Cook voted for the rate cut. Trump is attempting to fire her over alleged mortgage irregularities, but a federal appeals court ruled late Monday she can continue serving as the case is litigated.
- Treasury Secretary Scott Bessent is interviewing candidates to replace Powell when his term is up in May.
By the numbers: Job growth came to a near-halt over the summer, and employers added only 27,000 jobs a month from May through August. That contrasts with 123,000 jobs a month added in the first four months of the year.
- At the same time, inflation pressures have remained elevated amid new tariffs. The Consumer Price Index was up 2.9% for the year ended in August, up from 2.7% in July.
Zoom in: The Fed leaders' economic projections, updated for the first time since May, showed only modest changes.
- The median official sees 1.6% GDP growth this year, up from 1.4% in June.
- The median projection for the unemployment rate was unchanged at 4.5% and for inflation unchanged at 3%.
