US Federal Reserve lowers policy rate 25 basis points, 1st cut this year

ISTANBUL

The US Federal Reserve slashed its benchmark federal funds rate by 25 basis points Wednesday, between the 4% - 4.25% target range, as widely expected.

This marked the first rate cut this year, as the bank had held the rate unchanged in the five previous meetings.

The Fed stated that recent data showed that the growth of economic activity moderated in the first half of the year.

"Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated," the central bank said.

It said the Federal Open Market Committee (FOMC) seeks to achieve maximum employment and inflation at the rate of 2% in the longer run.

"The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen," it said.

The Fed said in considering the extent and timing of additional adjustments to the target range for the policy, the FOMC will "carefully" assess incoming data, the evolving outlook and the balance of risks.

"The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities," it added.

The decision to lower the rate by 25 basis points was supported by 11 of 12 governors, while newly sworn-in Stephen Miran supported a 50 basis point rate cut.

The decision came after the weak employment data in the previous weeks. Maximum employment and stable prices are the dual mandate that the Fed watches out for when determining monetary policy.

The number of open jobs in the US (JOLTS) fell to 7.18 million in July, the lowest level since September 2024 and below expectations, while private sector employment in the country increased by a lower-than-expected 54,000 jobs in August.

Non-farm employment in the US increased by 22,000 jobs in August, falling short of expectations. The unemployment rate, which rose from 4.2% to 4.3%, also reached its highest level since October 2021.

The number of people filing for unemployment benefits for the first time in the country also rose by 27,000 to 263,000 in the week ending Sept. 6, reaching its highest level since October 2021.

Meanwhile, last week, the Bureau of Labor Statistics revised its employment statistics, finding that 911,000 fewer non-farm jobs were created in the 12-month period ending in March 2025 than initially reported.

On the inflation front, the US Producer Price Index (PPI) fell by 0.1% in August, marking the first monthly decline since April. The PPI rose 2.6% year-on-year, falling short of expectations.

The Consumer Price Index (CPI) rose 0.4% month-on-month in August, exceeding expectations, and rose 2.9% year-on-year, in line with expectations. Annual inflation reached its highest level since January during this period.

It also followed the US President Donald Trump's repeated criticisms of Fed Chair Jerome Powell, accusing him of failing to act swiftly as economic risks mount, and his intervention in the Fed's Board of Governors.

Trump has repeatedly demanded that the central bank cut interest rates, citing moves by the European central banks and warned that delays could stall the US economy. Despite the political pressure, the central bank had kept the rate unchanged at the five previous meetings.

Also, Trump attempted to fire the Fed Governor Lisa Cook, one of the members of the central bank's Board of Governors that determines the monetary policy decisions. But Cook remained on the board after an appeals court's ruling Monday, which indicated that the president cannot fire Cook.

The president also nominated Stephen Miran to the board in place of the former Governor Adriana Kugler. Miran's role as a Fed governor was confirmed by the Senate on Monday.

The central bank had kept the rate at the historically high level of 5.5% from July 2023 to September 2024, before gradually lowering it to 4.5% in its December meeting.