Federal Reserve Cuts Key Rate, Signals Two More Reductions This Year

WASHINGTON — The Federal Reserve cut its target range for the federal funds rate by a quarter-point to about 4.1%, its first reduction since December, and projected two more cuts this year as concerns grow about the health of the labor market.

Officials said downside risks to employment have risen as inflation remains modestly above the 2% target. The central bank has shifted its focus from inflation to the labor market after hiring slowed and the unemployment rate ticked higher. The rate cut could lower borrowing costs for mortgages, car loans and business loans, potentially supporting growth and hiring. The policy statement signaled two more rate reductions this year, with just a single cut projected for 2026, a path that may disappoint Wall Street.

Before the decision, traders had priced in five rate cuts for the rest of this year and next. Only one policymaker dissented from the decision: Stephen Miran, a Trump appointee confirmed just hours before the meeting, with two other Trump appointees on the panel.

Powell and other officials had previously described the job market as solid, but data in recent months show hiring slowing and the jobless rate edging higher. Employers trimmed payrolls by 13,000 in June and added only 22,000 in August, while the government said last week that its estimate of job gains for the year ended in March 2025 would likely be revised down by about 911,000.

Inflation has remained stubbornly elevated, with August prices up 2.9% from a year earlier, above the central bank’s 2% target, helped in part by tariffs that boost the costs of some goods.

The Fed’s quarterly projections released after the meeting are expected to show three total reductions this year and at least two more next year. Many economists see the shift as a recalibration designed to keep growth and hiring from slowing too much, rather than a rapid policy tightening or a sudden pivot in stance.

Analysts continue to weigh how aggressively the central bank can continue lowering rates without letting inflation reaccelerate, and whether the labor market can recover quickly enough to sustain gains.