US Fed cuts rates for first time in 2025 amid Trump pressure, weaker jobs outlook

The US Federal Reserve on Wednesday lowered interest rates for the first time in 2025, citing slower job gains and risks to employment as it navigates competing economic pressures under President Donald Trump.

The Fed cut its benchmark lending rate by 25 basis points, setting it in a range of 4.0 to 4.25 percent, and signalled two additional cuts this year.

Only newly appointed Fed Governor Stephen Miran, a former Trump economic adviser who joined the board this week after a rapid Senate confirmation — dissented, arguing for a deeper 50-basis-point cut. The other 11 voting members of the Federal Open Market Committee (FOMC) backed the smaller move.

The rate reduction marks the first meeting involving Miran, who previously chaired the White House Council of Economic Advisers. His appointment follows Trump’s ouster of Fed Governor Lisa Cook in August, a move that triggered an ongoing legal dispute over the central bank’s independence.

Policymakers face a difficult balancing act: Trump’s sweeping tariffs have stoked inflationary pressures, while the labour market shows signs of weakening. The Fed typically maintains higher rates to steer inflation back toward its 2 percent target, but easing policy can help shore up employment.

Alongside the cut, the Fed lifted its 2025 growth forecast to 1.6 percent, up from June’s 1.4 percent projection, while keeping unemployment and inflation forecasts unchanged.

Trump has repeatedly demanded steeper cuts and stepped up criticism of Fed Chair Jerome Powell. Miran, meanwhile, has drawn scrutiny from Democrats for taking a leave of absence rather than resigning from his White House post, saying his temporary Fed role ends on January 31.

Dissents

Economists had expected more division among the FOMC as policymakers walk a tightrope balancing inflation and labor market risks.

This time, employment concerns won out, even as inflation remains above 2.0 percent.

The Fed said in a statement announcing its rate cut that “downside risks to employment have risen,” even as inflation has “moved up and remains somewhat elevated.”

It noted that job gains have slowed while the unemployment rate has inched up – even as it “remains low.”

All eyes are now on Powell’s press briefing, which takes place shortly after the rate decision is unveiled.

The expectation of two more rate cuts this year is slightly more than anticipated previously.

The Fed made its last rate cut in December, and had held interest rates steady all year as it monitored the effects of Trump’s tariffs on inflation.

The impact so far appears limited but economists warn their full effects have yet to materialise.

‘Political attention’

The central bank faces heightened scrutiny moving forward too.

Miran’s confirmation – without resigning from the CEA – risks a sense of political influence over Fed decisions, EY chief economist Gregory Daco earlier told AFP.

Economists will be monitoring Miran’s remarks and further votes on rate decisions.

Separately, the legal battle by Cook – the first Black woman on the Fed’s board of governors – could have broader implications for the bank.

A federal appeals court ruled late Monday that Cook could remain in position while challenging her removal over alleged mortgage fraud.

But the Trump administration plans to appeal the outcome, potentially bringing the case to the Supreme Court.

“The backdrop that we’re experiencing, where there is increased political attention on the Fed, is concerning,” Daco said.

“History has showed that in times when a central bank is under political influence, the economic outcomes are suboptimal,” he added.

This could mean higher inflation, lower growth and more financial market volatility.

With inputs from agencies