Fed Lowers Interest Rates and Announces Two More Cuts by Year-End

The American central bank, the Federal Reserve, has reduced its interest rates by a quarter point, signaling two more cuts by the end of the year due to increasing weakness in the labor market.

With 11 votes in favor and one against, this long-awaited decision was made, and the fact that only one Fed official voted against it indicated that disagreements within the Fed are less than initially thought. The Federal Open Market Committee (FOMC) lowered its overnight interest rate to a range of 4.00 to 4.25, with the only dissenting vote coming from newly appointed governor Stephen Miran, who advocated for a half-point cut.

Miran was recently appointed to this position by American President Donald Trump, who has been advocating for lower interest rates for months.

Following the meeting, the FOMC characterized economic activity in the U.S. as ‘moderate’ and did not want to portray the labor market in a negative light, stating that ‘job growth has slowed’ while also adding that inflation ‘has risen and somewhat remained elevated.’

Lower employment growth and higher inflation are at odds with the Fed’s dual goals of stable prices and full employment.

– Uncertainty regarding economic prospects remains elevated. The Committee is monitoring risks on both sides and believes that the risks of declining employment have increased – the Fed’s statement noted.

The Fed’s decision destabilized the U.S. stock market while yields on government bonds were also mixed. The unstable tone was further contributed to by the statement from Fed Chairman Jerome Powell, who characterized this cut as ‘risk management’ rather than focusing on strengthening the weak economy.

At his press conference following the meeting, Jerome Powell reiterated concerns about the labor market.

– A significant slowdown in the supply and demand for workers is unusual in this less dynamic and somewhat weaker labor market. It seems that the risks of declining employment have increased – Powell stated at the conference, adding that the decision to cut places monetary policy in a ‘more neutral’ position, whereas it was previously moderately restrictive.

Along with the interest rate decision, officials indicated in their closely watched ‘dot plot’ of individual expectations that there would be two more cuts before the end of the year. However, the network showed a high level of inequality, with one dot, possibly Miran’s, indicating a total of 1.25 percentage points of additional cuts this year.

The chart was created anonymously, with one dot for each meeting participant, but Miran was an advocate for much lower interest rates. Nine out of 19 participants indicated only one more cut this year, while ten forecast two, suggesting changes at the meetings in October and December. One official did not want any cuts, including today’s.

Trump’s Imposition

Projections released after the meeting regarding general economic conditions anticipated somewhat faster economic growth than projected in June, while the outlook for unemployment and inflation remained unchanged.

A stunning level of political drama preceded the meeting, especially for an institution that generally operates quietly and with little opposition.

A year ago, despite similar concerns that a gradual rise in the unemployment rate could signal broader weakness, the FOMC approved a significant half-point cut, which Trump claimed was politically motivated to influence the presidential election in favor of his Democratic opponent, Kamala Harris.

Trump’s interference with the Fed and Miran’s appointment raised questions about the traditional independence that the central bank has had from political influence. Miran has also openly criticized Powell and his colleagues and is generally seen as a loyal voice of the American president and his desire for significantly lower rates.

The American president wanted lower rates because, he claims, they are necessary to strengthen the ailing real estate market and reduce the costs of financing public debt. However, Powell stated that there was no ‘broad support’ for a half-point cut at the meeting.

This week, there was an additional layer of political intrigue as a court prevented Trump from removing Governor Lisa Cook, who was appointed by former American President Joe Biden.

Recent signals have shown that economic growth remains solid, and consumption exceeds forecasts, although the labor market has been a point of contention. Regarding employment, the unemployment rate reached 4.3 percent in August, which is still relatively low by historical standards but the highest since October 2021. Job openings have stagnated this year, and a recent update from the Bureau of Labor Statistics showed that the economy created nearly a million fewer jobs than initially reported in the 12-month period before March 2025.

Governor Waller specifically expressed concern, stating that the Fed should ease policy now to prevent future problems in the labor market. His name is also mentioned as a potential replacement for Powell, whose term expires in May 2026.