Fed cuts interest rates by quarter-point, first cut in nine months, amid Trump's pressure campaign

The Federal Reserve cut interest rates by a quarter-percentage point Wednesday to bolster a weak job market amid unrelenting pressure from President Trump, who has installed a key ally at the central bank.

It was the Fed’s first rate cut in nine months, lowering the benchmark rate to 4%-4.25% from 4.25%-4.5% . The Fed also signaled potentially more rate cuts before the end of the year and possibly in 2026.

The vote for the quarter-point cut was 11-1. The sole dissenter was Mr. Trump’s top economic adviser, Stephen Miran, who advocated a half percentage point cut. Mr. Trump swore in Mr. Miran to the Fed’s board of governors shortly before their two-day meeting began Tuesday.

Mr. Trump’s two other appointees on the board, Michelle Bowman and Christopher Waller, voted for the quarter-point cut.

The major reason the Fed lowered borrowing costs was concern about sluggish job growth. The Labor Department said employers hired an average of 29,000 workers monthly for the three months ending in August.

“In the near term, risks to inflation are tilted to the upside and risks to employment to the downside: A challenging situation,” Federal Reserve Chairman Jerome Powell said during a news conference.

Mr. Powell called the labor market “unusual.” He noted that fewer employers are hiring but the number of workers is lower because of Mr. Trump’s immigration crackdown.

Revised numbers showed the economy lost jobs in June for the first time since December 2020, when the nation was in the throes of the COVID-19 pandemic.

Since January, employers have added fewer jobs than in any other year since 2010, when America had 17 million fewer workers. The slow job numbers have been a source of consternation for Mr. Trump, who campaigned on reviving the economy after soaring inflation under President Biden.

The bank’s rate cut shows that its concerns about inflation from Mr. Trump’s tariffs have been replaced by worries about a weakening job market.

The stock market had a mixed reaction. The Dow Jones Industrial Average briefly turned negative before returning to positive territory. The Dow closed up 260 points, or 0.5 %, to finish at 46,018 points. The S&P 500 dropped by 0.1%, and the tech-heavy Nasdaq composite fell 0.3%.

Lawmakers on both sides of the aisle immediately politicized the rate cut.

House Ways and Means Committee Chairman Jason Smith, Missouri Republican, said he was glad the Fed was “finally” lowering interest rates.

“The Fed appears to be waking up to reality, but unfortunately, their delay has already harmed working families. Recent data showed 911,00 fewer jobs were created at the back end of the Biden presidency than originally understood, revealing the weak economy President Trump inherited from Joe Biden,” he said.

Rep. Brendan Boyle of Pennsylvania, the top Democrat on the House Budget Committee, said the rate cut was proof that Mr. Trump’s economy isn’t doing well and warned about “stagflation,” a combination of high inflation and slow economic growth.

“The Fed isn’t cutting rates because the economy is strong. It’s cutting them because Donald Trump is recklessly sabotaging it,” he said.

The rate cut is unlikely to give consumers much relief, but members of the Fed’s Open Market Committee projected a median of two more rate cuts before the end of the year and possibly into 2026.

However, panel members were divided about how much to cut rates. Nine voting and nonvoting officials suggested two more rate cuts this year. Six members supported keeping rates unchanged for the rest of the year, two called for one rate cut, one called for a rate increase and another called for a 1.25 percentage point reduction.

Mr. Trump has taken several unprecedented steps to compel the Fed to slash borrowing costs. He has tried to fire Fed Governor Lisa Cook, accusing her of mortgage fraud. Ms. Cook spent Monday awaiting a ruling from a federal appeals court to determine whether she could attend the Fed meeting. The court ruled in her favor.

Mr. Miran, the chair of the White House’s Council of Economic Advisers

whom Mr. Trump nominated to an open seat on the board of governors, is aligned with the president on the economy and has shown that he will press for steeper interest rate cuts.

During his confirmation hearing, Mr. Miran said he supported the central bank’s ability to make independent policy decisions free of political influence, but Mr. Trump was salivating Tuesday at the prospect that his pick would stand up to Mr. Powell.

“He’ll have a big influence on ‘Too late’ getting his rates down,” Mr. Trump said, repeating one of his favorite insults for Mr. Powell.

If Mr. Trump replaces Ms. Cook, his appointees would hold a 5-2 majority on the seven-member board. Some Fed watchers say that could seriously compromise the central bank’s ability to make tough decisions free from the White House’s short-term political demands.

The Fed had been wary about cutting interest rates this year because of worries that Mr. Trump’s widespread tariffs would reignite inflation. Double-digit tariffs on household goods such as coffee, clothing and small appliances increased the overall cost of living in August by 2.9% from a year ago, the largest increase in seven months.

However, Mr. Trump’s tariffs, which have been in place in some form for most of the year, have yet to unleash the kinds of severe inflationary pressures that some economists have predicted. The White House has insisted that foreign exporters, not American companies or consumers, bear the brunt of the tariff costs.

The rate cut will likely disappoint Mr. Trump because it’s not nearly as much as he demanded. The president has waged a tireless campaign against Mr. Powell and the Fed board for a “very big cut.” In July, Mr. Trump said the interest rates were at least 3 percentage points too high.

The president has repeatedly insulted Mr. Powell as part of the pressure campaign, calling him a “moron,” “numbskull” and “fool.” He also has accused the Fed of overspending on renovations of its headquarters in Washington.

The president has argued that drastically reducing rates would lower the interest the government pays on the national debt and push down the costs of mortgages and credit card spending. That could help stimulate the economy, he said.

Economists have argued that rapid and deep rate cuts could backfire because it would appear that the Fed was reacting to mounting pressure from the White House. That would raise questions about its independence and credibility, thus further destabilizing the U.S. economy and spooking investors on Wall Street.