Fed cuts rates as markets rally, Powell warns labor market weakness persists

The Federal Reserve cut its benchmark rate by a quarter-point on Wednesday, the first such move since December, in an effort to bolster hiring in a cooling jobs market. Wall Street responded with gains, and by Thursday the S&P 500, Dow and Nasdaq were trading at or near record highs, led by the Nasdaq.

Powell acknowledged that while the move aims to support hiring, the labor market has softened and there are fewer help-wanted signs in business windows. He noted that workers at the margins, including recent graduates and minorities, are having a harder time finding jobs. The Fed reaffirmed its dual mandate to keep inflation in check while promoting maximum employment, and officials signaled that further policy moves will depend on incoming data. The decision reflects an attempt to stimulate hiring without fanning inflation.

Fresh data underscore the weakness in the labor market. Last month, employers added only 22,000 jobs, far below Wall Street forecasts of around 76,000. Weekly unemployment claims rose to more than 263,000 in the week ending Sept. 6, an increase of about 27,000. Revisions to earlier reports show job creation through March 2025 was about 911,000 lower than previously reported. Inflation remains elevated, with consumer prices up 2.9 percent over the year, driven by higher costs for groceries, autos and back-to-school items.

Analysts cautioned that markets cheered the rate cut even as inflation remains persistent. A portfolio manager said the Fed faces a difficult balancing act and that the decision was not driven by political pressure. The report also highlights the challenges facing workers in vulnerable groups: Black unemployment has climbed above 7 percent, and about 7.4 percent of young job applicants are not getting past the interview stage.

Fed officials project a path toward 2 percent inflation by 2028 while aiming to stabilize unemployment by year-end. Powell warned that there are no risk-free paths and that it is not obvious which steps will be most effective, underscoring the difficulty of steering the economy through a period of inflation and labor-market weakness.