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 Federal Open Market Committee (FOMC), which guides the central bank’s monetary policy moves, noted in its announcement that job gains have slowed and the unemployment rate has risen but remains relatively low, while inflation has risen and remains somewhat elevated. The FOMC added that in monitoring both sides of the dual mandate that “downside risks to employment have risen.”
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Only one policymaker, newly confirmed Fed Governor Jeffrey Miran, dissented from the FOMC’s 11-1 vote. Miran, who preferred a 50-basis-point cut at this meeting, replaced former Fed Governor Adriana Kugler, who resigned in August.
Federal Reserve Chair Jerome Powell has previously said that if indicators around inflation and the labor market are both moving away from those goals, then policymakers will focus on addressing whichever is further from the target.
Powell began his press conference by saying the Fed remains focused on both of its dual mandate goals and noted that recent economic developments have suggested a slowdown in growth.
“Overall, the marked slowing in both the supply of and demand for workers is unusual. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said. “Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal.”
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Powell reiterated that tariff-induced price hikes could represent a one-time shift in the price level, but could represent a more persistent inflationary challenge. He explained that the Fed’s “obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.”
“We have begun to see goods prices showing through into higher inflation and actually the increase in goods prices accounts for most of the increase in inflation or perhaps all of the increase in inflation over the course of this year. Those are not very large effects at this point, and we do expect them to continue to build over the course of this year and into next year,” Powell said.
Powell said that the Fed believes the upward trend in inflation will be a one-time price increase from tariffs, but said the central bank can’t take that for granted as it weighs monetary policy.
“We can’t just assume that though,” he said. “Our job is literally to make sure that that is what happens, and we will do that job.”
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Powell was asked about signs of tariffs causing inflation and noted that goods inflation was negative last year but is up 1.2% over the past year, after goods prices had generally fallen for 25 years prior to the pandemic even after adjusting for product quality.
He added that tariffs are contributing something like 0.3 or 0.4 percentage points to the current core PCE inflation reading of 2.9%.
“What seems to be happening is that the tariffs are mostly not being paid by exporters,” Powell said. “All of those companies and entities in the middle, they’ll tell you that they have every intention of passing that through in time, but they’re not doing that now. To the consumer, the pass-through has been pretty slow, it’s been slower and smaller than we thought. But the evidence is clear that there’s some pass-through.”
The Fed chair was asked about the central bank’s independence, given President Donald Trump’s efforts to influence the central bank’s decision, and how the public can be assured its monetary policy moves are based on economic conditions instead of political considerations.
Powell said that it’s “deeply in our culture to do our work based on the incoming data and never anything else,” adding that “you’ll know it by the way we talk about it, by the speeches that people give, by the decisions that we make.”
“We don’t frame these questions at all, or see them in terms of political outcomes. I think when you get to another part of Washington, everything is seen through the lens of does it help or hurt this political party,” he said. “I think people find it hard to believe that that’s just the way we think about things at the Fed. We’re taking a longer perspective, we’re trying to serve the American people the best we can.”
US JOB GROWTH THROUGH MARCH REVISED LOWER BY 911K
FOX Business’ Edward Lawrence asked Powell about the Bureau of Labor Statistics’ preliminary benchmark revision, which showed the labor market added 911,000 fewer jobs than reported over the April 2024 to March 2025 period and how the Fed bases decisions on such data.
Powell said it was “amazing how close the expectation was, and the reason for that was for the last bunch of quarters there’s been an almost predictable overcount, and I think the Bureau of Labor Statistics really understands this, and they’re working hard to fix it.”
Lawrence asked if that would’ve changed the Fed’s previous decisions to leave rates unchanged, and Powell responded, “We have to live life looking through the windshield, rather than the rearview mirror, as you know. And all I can tell you is we see where we are now, and we take appropriate action, and we took that appropriate action today.”
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The Fed has been under pressure from the Trump administration to cut interest rates, with the president having repeatedly threatened to fire Powell – though he has since backed off those threats with the chair’s term due to expire in May 2026.
Powell was asked about whether he plans to leave the Fed after his term as chair ends rather than remaining on as a Fed governor, as that term runs until 2028, though he declined to comment.
Trump is also attempting to fire Fed Governor Lisa Cook over allegations of mortgage fraud, though a district court ruling that temporarily blocked the firing was upheld by an appellate court and allowed her to participate in this week’s FOMC meeting.
Cook has not been charged with any crimes related to the allegations, which were raised by Trump ally and FHFA Director Bill Pulte. Powell declined to comment on the case involving Trump’s effort to fire Cook.
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