Fed said for further tweaks to the interest rates, the committee will assess incoming data, evolving outlook, and the balance of risks.
The central bank acknowledged that growth of economic activity moderated in the first half of the year and that job gains have slowed. However, even as it effected a reduction, Fed pointed to elevated inflation.
The latest consumer price data showed inflation in August hitting a seven-month high, with food and apparel costs driving much of the increase. Despite this, policymakers opted to prioritise the job market, which has shown signs of weakness.
Recent figures revealed smaller job gains and a rise in unemployment, with many companies delaying hiring amid an uncertain economic outlook.
Along with the policy outcome, Fed lifted its 2025 growth forecast to 1.6% from June’s 1.4% projection. However, it made no change to its unemployment and inflation forecasts.The Fed’s action breaks a pause that began in January after a string of cuts between September and December last year. Analysts say the latest move could provide fresh momentum for Wall Street, though some of the optimism may already be priced in.Market participants now expect a series of rate reductions through the rest of the year and into 2026. Some forecasts point to as many as six more 25 basis-point cuts by the end of next year, though much depends on the path of inflation and the resilience of the broader economy.
The decision also comes against the backdrop of political pressure. US President Donald Trump has been vocal in urging Chair Jerome Powell to bring down rates more aggressively, accusing the Fed of holding back growth. Divisions within the central bank’s policy committee had also delayed a pivot, but today’s move indicates a clear shift in stance.
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