The Federal Reserve cut its benchmark interest rate a quarter of a percentage point on Wednesday, opting for its second interest rate cut this year in an effort to jumpstart the flagging labor market.
The widely expected move delivers a lowering of interest rates sought by President Donald Trump, though the size of the cut falls short of the major drawdown called for repeatedly by the president.
The policy marks the first interest rate adjustment since the outset of a weekslong government shutdown that threatens to cool economic activity, all the while sharply restricting the release of gold-standard federal data prized by Fed policymakers.
In a rare exception, the U.S. government issued an inflation report last week showing a continued acceleration of price increases, which may complicate the Fed’s attempt to revive the labor market.
Inflation has picked up in recent months while hiring has slowed, posing a risk of an economic double-whammy known as “stagflation.”
Those economic conditions have put the Federal Reserve in a bind, since the central bank must balance a dual mandate to keep inflation under control and maximize employment.
“Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months,” the Federal Open Market Committee (FOMC), a policymaking body at the Fed, said in a statement on Wednesday.
If the Fed raises interest rates as a means of protecting against tariff-induced inflation, it risks tipping the economy into a downturn. On the other hand, if the Fed lowers rates to stimulate the economy in the face of a hiring slowdown, it threatens to boost spending and worsen inflation.
Last month, the Fed cut its benchmark interest rate a quarter of a percentage point, opting for its first interest rate cut this year. The federal funds rate stands between 3.75% and 4%, its lowest level since 2022.
Last month, the Federal Open Market Committee (FOMC), a policymaking body at the Fed, projected two additional quarter-point rate cuts over the remainder of the year. By contrast, Trump has called for rate cuts totaling as much as 3 percentage points.
Trump has carried out a pressure campaign at the Fed with little precedent.
In recent months, Trump moved to fire one member of the Fed’s board of governors and secure Senate confirmation for another. Both officials were among the 12 policymakers who cast votes on last month’s interest-rate decision, though their status remained uncertain days before the Fed meeting. They both stand poised to cast votes again on Wednesday.
Stephen Miran, a top White House economic advisor who joined the Fed last month, cast the lone vote in favor of a larger half-point rate cut.
Trump attempted to fire board member Lisa Cook, who sued Trump over her attempted ouster, saying the decision violated her legal protections as an employee at the independent federal agency. Trump said he removed Cook over mortgage fraud allegations against her.
Federal law allows the president to remove a member of the Fed board “for cause,” though no president has attempted such a removal in the 112-year history of the central bank.
Last month, a federal judge issued a preliminary injunction requiring the Fed to let Cook continue serving in her role as a governor of the Federal Reserve System as her lawsuit moves through the courts.
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