Central bank lowers rate for the first time in nine months, signaling two more cuts this year as hiring slows and unemployment ticks up.
The Federal Reserve on Wednesday cut its key interest rate by a quarter-point, its first such move since December, as the central bank shifts its focus from elevated inflation to a weakening labor market.
The decision, which lowers the short-term rate to about 4.1%, was accompanied by a projection of two more rate reductions before the end of the year, a move that could disappoint investors who had anticipated a more aggressive series of cuts.
The Fed’s statement after its two-day meeting cited “downside risks to employment” as the primary driver for the rate reduction. The central bank’s concern has mounted in recent months as hiring has stalled and the unemployment rate has risen.
This marks a notable change in the Fed’s stance, which had previously kept rates unchanged this year to assess the impact of tariffs and other policies on inflation.
While inflation remains modestly above the Fed’s 2% target, recent economic data has painted a grim picture of the job market. The government recently reported a sharp slowdown in hiring, including a slight contraction in payrolls in June and minimal gains in August.
Furthermore, a significant downward revision of nearly a million jobs for the year ending in March 2025 has cast a shadow on the previously “solid” job market cited by Fed Chair Jerome Powell.
Lower interest rates are expected to reduce borrowing costs for consumers and businesses, potentially stimulating growth and encouraging more hiring. This “recalibration” of rates, as some analysts call it, is seen as a measured effort to keep the economy on a stable growth path rather than a panicked response to a looming recession.
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