US Federal Reserve cuts interest rates for the first time since December

As a result of a sluggish labor market that stifles economic growth, the US Federal Reserve will cut interest rates by a quarter of a percentage point, moving them to 4.25 percent.

On Wednesday afternoon, the US central bank, the Fed, made its announcement.

The odds were set at 96%, according to CME FedWatch, a group that monitors the likelihood of monetary policy decisions. One hundredth of a percentage point is equivalent to one basis point.

The Fed’s benchmark rate, which had been held steady since December, had previously fallen by 25 basis points, the third cut since last year.

Jerome Powell, the head of the Federal Reserve, has argued that the Fed has been cautious because of the economy’s uncertainty, arguing that continuing to hold rates gave policymakers flexibility as the world changed.

Following a string of sluggish job reports that indicated a slowdown in inflationary pressures and a slight decline in growth in the labor market, the cut comes as a response to shifting economic conditions.

“Recent indicators indicate that economic activity increased more slowly in the first half of the year. Employment has decreased, and unemployment rates are still low despite a rise in employment. According to a press release from the central bank, inflation has increased and is still somewhat elevated.

“The uncertainty surrounding the economic outlook persists.” The Committee considers the risks that exist on both sides of its dual mandate to be increasing, and it is aware of them.

Following the rate cut, Powell addressed a press conference by saying that the combination of the effects of tariff and immigration policies is “unusual.”

According to Powell, “the labor market is really cooling off.”

The Fed’s statement in its news release also stated that it was willing to make additional interest rate cuts “as appropriate if risks arise” that might interfere with its dual goals of achieving maximum employment and lowering inflation to 2 percent.

As economic uncertainty weighs on the US labor market and the broader economy as the cost of goods and services rises under tariff-driven pressures, investors had been anticipating the central bank’s decision to cut interest rates two or three times for the rest of the year.

Political pressure

The Fed, which has long emphasized its independence from political pressure, is being pressured to make the most of the latest cuts. However, US President Donald Trump has publicly criticised the central bank for months and has made fun of Powell because of his cautious approach to rate reductions.

In response to allegations of mortgage fraud, former US President Joe Biden, a Democrat, was appointed as the Republican-led White House’s replacement.

A US appeals court forbade Trump from removing her on Monday. The administration has stated that it will contest the decision.

“Last year, the president legitimately removed Lisa Cook.” The administration will challenge this decision on appeal on Tuesday, according to White House spokesman Kush Desai.

Adriana Kugler had been a temporary Fed official until January, but Adriana Kugler had to wait until then to take the oath as the White House searched for a permanent replacement.

Miran pledged to act independently, but his close ties to the Trump administration and his work as a fellow at the conservative Manhattan Institute have sparked doubts. His Senate confirmation was largely racial, 47–48, and Alaska’s Senator Lisa Murkowski was the only Republican to oppose him.

Senate Minority Leader Chuck Schumer characterized Miran as “nothing more than Donald Trump’s mouthpiece at the Fed.”

The Fed’s news release on Wednesday revealed that Miran had voted for a 25 basis point cut while the other members had pushed for a larger rate cut.

In response to a question, Powell responded, “There wasn’t widespread support at all for a 50 basis point cut today.”

Powell was asked if Miran, who has maintained his position at the White House, would threaten the bank’s political independence, but he objected and said the Fed still maintains its independence.

Markets react

Source: Aljazeera