Fed Cuts Interest Rates by Quarter Point Amid Pressure from White House, Anticipating Slowing Job Market

The Federal Reserve took a decisive action on Wednesday, lowering interest rates by 0.25 percentage points in an attempt to bolster the ailing U.S. labor market. This move comes as Fed officials grapple with mounting pressure from the White House.

In line with expectations, the central bank adjusted its key interest rate to a range of 4% – 4.25%, marking the first such reduction in nine months, and reflective of signs indicating a significant deceleration in job growth. Moreover, Fed policymakers hinted at an average additional cut of 0.5 percentage points by year-end.

The President has expressed his desire for lower interest rates and has been actively pushing to assert greater influence over the central bank, circumventing established safeguards intended to shield it from political pressure.

A new member, Stephen Miran, appointed as a White House economist, was recently confirmed by the Senate, voting largely along party lines. During Wednesday’s meeting, Miran diverged from his Fed colleagues and advocated for a larger 0.5 percentage point cut.

In an attempt to sideline another Fed board member, President Trump sought to dismiss Lisa Cook via social media last month. However, federal courts have temporarily halted her removal. The White House has announced plans to petition the Supreme Court to allow for Cook’s termination.

Should Trump successfully replace Cook, his appointees would control a majority on the seven-member governing board. Seasoned Fed observers express concerns that this could potentially impair the central bank’s capacity to make independent decisions regarding interest rates, free from short-term political demands from the White House.

The Fed has shown caution in reducing interest rates this year, due to worries over Trump’s tariffs reviving inflation. Escalated import taxes have led to price increases for goods such as coffee, clothing, and small appliances. The cost of living rose 2.9% year-over-year in August, marking the largest annual increase in seven months.

For now, concerns about persistent inflation have taken a back seat to apprehensions about a deteriorating job market. U.S. employers added a paltry 22,000 jobs in August, with revised figures suggesting a loss of jobs in June for the first time since 2020.

The unemployment rate currently stands at 4.3%, which, while low by historical standards, is partially attributed to the administration’s immigration crackdown limiting the workforce availability.

Fed Chair Jerome Powell addressed a gathering of central bankers last month in Jackson Hole, Wyoming, stating, “The labor market appears balanced, but it is an unusual balance that results from a slowing in both worker supply and demand. This situation suggests that downside risks to employment are on the rise. If these risks materialize, they can do so swiftly, manifesting as sharp increases in layoffs and unemployment.”

On average, members of the Fed’s rate-setting committee anticipate the unemployment rate to climb to 4.5% by year’s end—the same level projected in June.