The Fed voted on Wednesday to reduce the federal funds rate by 25 bps, with the dot plot showing a majority of central bank officials in support of at least two more rate cuts by the end of the year.
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Fed Chair Jerome Powell warned that the labor market is no longer “solid,” citing lower participation from the workforce and lower immigration as factors. In addition, he characterized the Fed’s move as a “risk management cut” in order to address employment.
Furthermore, Powell believes that inflation will track near the Fed’s long-term goal of 2.0% after 2026 and downgraded the risk of persistent inflation.
Powell Reaffirms Independence as Fed Balances Inflation and Jobs
The Fed’s dual mandate is to maximize employment while keeping inflation in check. That creates a challenge for the central bank, as it must find a balance to fulfill both of these goals. Powell stressed that the Fed will remain independent moving forward while continuing to make data-driven decisions.
The last time the Fed cut rates was in December 2024, although Powell said “I think we were right to wait,” undercutting President Trump’s demands for aggressive rate cuts. Of the 12 voting Fed officials, 11 voted for a 25 bps reduction, while Fed Governor Stephen Miran voted for a 50 bps cut.
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