U.S. Federal Reserve Cuts Interest Rate by 25 Basis Points, First Cut Since December 2024

On September 17, 2024 (Eastern Time), the U.S. Federal Reserve announced a 25-basis-point interest rate cut, marking the first rate cut since December 2024. The Fed also continued its balance sheet reduction. Two more cuts are expected this year. Fed Chair Jerome Powell reaffirmed the Fed's independence, despite ongoing pressure from President Trump to cut rates. Trump has nominated Stephen Moore for a Fed governor position. Additionally, Powell confirmed that the Fed is implementing a 10% staff reduction plan, which will bring the employee count back to levels seen a decade ago.

The U.S. Federal Reserve cut its key lending rate by 0.25 percentage points, lowering it to a range of 4% to 4.25%, the lowest since late 2022. This is the first rate cut since December and is expected to be followed by further reductions in the coming months. The decision was supported by 11 out of 12 voting members, with Stephen Miran, on leave from Trump's Council of Economic Advisers, advocating for a larger 0.5 percentage point reduction. Fed Chairman Jerome Powell noted that while unemployment remains low, there are growing concerns, and the move reflects a consensus that the job market needs support through lower interest rates.

Federal Reserve Chair Jerome Powell, speaking at the annual Jackson Hole conference in Wyoming, indicated that a potential interest rate cut is warranted due to growing risks to the economy, particularly in the job market. Powell clarified that the move towards rate reduction is not a response to political pressure from President Donald Trump, who has been advocating for lower rates and has also criticized Powell's leadership. Powell discussed the results of the Fed’s latest policy framework review, which is conducted every five years, noting that the new framework will have a broader focus to address both high inflation and unemployment, moving away from the previous emphasis on the effective lower bound. Powell acknowledged that past strategies during the Great Recession influenced current approaches and that the Fed had previously underestimated inflation's staying power after 2021. He also cited higher tariffs as a contributing factor pushing up prices in some goods categories, warning of a gloomier economic outlook. Powell’s remarks suggested the possibility of a rate cut as soon as next month.

The Federal Reserve announced an interest rate cut on September 4, lowering the benchmark rate by a quarter point to 4.00-4.25%. Fed Chair Jerome Powell noted that the labor market is cooling off. The move comes amid pressure from the Trump administration, which has criticized Powell for not cutting rates sooner and attempted to remove a Biden-era Fed official. The rate-setting committee voted 11-1 in favor of the quarter-point cut, with newly appointed governor Stephen Miran preferring a half-point cut. Both of President Donald Trump's other appointees, Michelle Bowman and Christopher Waller, supported the quarter-point cut.

The Federal Reserve maintained its short-term benchmark interest rate at 4.25% to 4.5%, despite pressure from President Donald Trump to lower rates. The Fed cited uncertainty over potential economic impacts from the administration's policies, such as higher tariffs and stricter immigration enforcement. Two out of eleven policymakers dissented, and the Fed also warned about slowing economic growth.

The minutes from the Federal Open Market Committee (FOMC) meeting held on June 17-18, released on Wednesday, reveal a consensus among officials to maintain the federal funds rate in its current range of 4.25% to 4.5%, a level that has been steady since December 2024. However, the document also highlights a growing divide among policymakers regarding future rate cuts. Most officials believe some reduction in the target rate will be appropriate within the year, citing the temporary and modest inflation pressures stemming from tariffs and potential weakening in economic growth and hiring. Despite this general agreement, opinions vary significantly on the extent and timing of reductions. Some officials foresee the next cut possibly as soon as the July 29-30 meeting if inflation remains under control, while others believe no cuts should occur this year. For instance, Fed Governors Michelle Bowman and Christopher Waller have publicly indicated they see a path to cutting rates soon.

Several members commented that the current rate might be close to a neutral level, which would imply only a few cuts ahead, due to inflation remaining above the 2% goal amid a resilient economy. The FOMC’s updated projections anticipate two rate cuts this year followed by three more over the next couple of years, although individual views differ widely as reflected in the dot plot. Chair Jerome Powell emphasized the Fed’s cautious stance, stating repeatedly that monetary policy decisions will not yield to political pressure. He underscored the importance of remaining patient given the strong economy and the uncertainties around inflation, suggesting the Fed is well-positioned to hold rates steady until clearer data emerges. The minutes note agreement among participants that while uncertainty has lessened, prudent and careful adjustment of monetary policy remains crucial. Officials also acknowledged potential challenging trade-offs, particularly if inflation stays elevated while employment prospects weaken, underscoring the complexity of the Fed’s task moving forward.