The Federal Reserve lowered interest rates on Wednesday, September 17th, for the first time since December to support America’s faltering labor market. However, the central bank’s leader seem unsure about the economy’s future.
The Fed cut its benchmark lending rate by a quarter point to a new range of 4% to 4.25%. It’s the first rate cut of President Donald Trump’s second term, following a nine-month pause prompted by the uncertainty surrounding the administration’s major policy shifts.
But the economy’s future remains up in the air, Fed Chair Jerome Powell told reporters at a press conference following the conclusion of the Fed’s monetary policy meeting, adding: “It’s not incredibly obvious what to do”.
Still, the Fed moved forward with a “risk management cut,” as Powell characterized it, because central bankers can’t wait around forever for the effects of Trump’s policies to become crystal clear. “We have to live life looking through the windshield rather than the rearview mirror,” Powell said.
The Fed’s latest decision wasn’t unanimous: Fed Governor Stephen Miran, a Trump appointee sworn in right before the Fed’s meeting began on Tuesday, dissented, backing a larger, half-point rate cut.
Fed officials penciled in an additional rate cut later in the year, according to their updated economic projections, compared to the two cuts in 2025 they estimated in June. That would mean the Fed could deliver another quarter-point cut at its October meeting, then another in December.
However, their projections for unemployment and inflation this year were unchanged compared to their June estimates. Powell made it clear that growing risks to the labor market were a key reason why the Fed finally lowered rates, even though there’s also a risk of Trump’s tariffs pushing up prices. The Fed chief characterized the labor market as one of “low hiring and low firing.”
The Fed’s latest decision was pivotal, but the elephant in the room was Trump’s aggressive efforts to reshape the central bank’s top ranks.
The first question Powell was asked was about Miran’s arrival at the Fed, specifically whether his arrangement of serving as a Fed governor while remaining an employee of the White House means anything for Fed independence.
“So, we did welcome a new committee member today and, as we always do, the committee remains united in pursuing our dual mandate goals,” Powell said. “We’re strongly committed to maintaining our independence and beyond that, I really don’t have anything to share.”
As Fed officials contend with a complicated economic puzzle, the central bank’s powerful Board has seen some unprecedented developments in recent months. The future of Fed Governor Lisa Cook remains up in the air as she challenges Trump’s attempt to fire her in the courts. In late August, Trump said he fired her, citing unproven allegations of mortgage fraud, which the Justice Department is actively investigating.
Meanwhile, Miran is a new voice at the Fed who is supportive of more aggressive rate cuts.
The Fed’s so-called dot plot — a graph of Fed officials’ estimates for their benchmark lending rate — showed one dot far below the other estimates, indicating that official backs aggressive rate cuts in 2025.
Democrats have raised concerns over Miran’s close ties with the president, pointing to the fact that he’s still technically an employee of the White House, since he’s taking an unpaid leave while serving as Fed governor for a vacated term ending in late January. Miran for his part has said he will form independent opinions about the economy.
