In recent months, Trump moved to fire one member of the Fed’s board of governors and secure Senate confirmation for another. Both officials were among the 12 policymakers who cast votes on last month’s interest-rate decision, though their status remained uncertain days before the Fed meeting. Last month, the Federal Open Market Committee (FOMC), a policymaking body at the Fed, projected two additional quarter-point rate cuts over the remainder of the year. By contrast, Trump has called for rate cuts totaling as much as 3 percentage points.
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The rate cut comes amid intense political pressure on the Fed, with President Trump repeatedly accusing Powell of moving too slowly to ease borrowing costs and shore up economic activity. At the same time, Powell said the Fed now views the pass-through of the Trump administration’s tariff as being “smaller and slower” than central bank officials had expected earlier this year. “We continue to expect inflation to move up, maybe not as much as we would have a few months ago,” he said. Stephen Miran, a top White House economic advisor who joined the Fed last month, cast the lone vote in favor of a larger half-point rate cut. “The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse when the shutdown ends,” Powell said. “In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said in a press conference following the Fed’s two-day meeting.
“The overall job-finding rate is very, very low, but the layoff rate is also very low,” Powell noted. “The concern is that if you start to see layoffs, the people who are laid off, there won’t be a lot of hiring going on.” Official websites use .govA .gov website belongs to an official government organization in the United States.
How do changes in the target range for the federal funds rate affect the economy?
The Federal Open Market Committee (FOMC) sets a target range for the federal funds rate. The FOMC has eight regularly scheduled meetings each year and announces its policy decisions at 2 p.m. The FOMC is made up of members of the Board of Governors, who are based in Washington, D.C., and Federal Reserve Bank presidents from around the country. Last month, the Fed cut its benchmark interest rate a quarter of a percentage point, opting for its first interest rate cut this year. The federal funds rate is the interest rate charged by banks to borrow from each other overnight.
The Federal Reserve cut its benchmark interest rate a quarter of a percentage point on Wednesday, opting for its second interest rate cut this year in an effort to jumpstart the flagging labor market. Federal Reserve officials are also penciling in two more rate cuts in 2025, but only one in 2026, according to the central bank’s summary of economic projections. That may disappoint Wall Street, with investors before the meeting projecting a total of five cuts over the rest of the year and 2026. The Federal Reserve on Wednesday lowered its benchmark interest rate by 0.25 percentage points — its first cut since December — as the U.S. grapples with a stalling labor market and slower economic growth. The actual interest rate at which depository institutions trade federal funds with each other overnight.
The widely expected move delivers a lowering of interest rates sought by President Donald Trump, though the size of the cut falls short of the major drawdown called for repeatedly by the president. An economic adviser to Mr. Trump, Stephen Miran, was confirmed by the Senate on Monday to take an open spot on the Fed’s Board of Governors. He will also sit on the 12-member Federal Open Markets Committee, or FOMC, which sets interest rates for the Fed. “Concerns for the labor market’s health are rising,” said Cory Stahle, economist in the Indeed Hiring Lab, in a statement after the Fed’s decision. “Unemployment and layoffs are relatively stable at historically low levels, which is encouraging, but they are unlikely to stay that way if labor market conditions deteriorate further.” According to those median projections, Fed officials expect the nation’s unemployment rate, currently 4.3%, to reach 4.5% by year-end before ticking down to 4.4% in 2026 and 4.3% the following year.
What are the monthly payments on a $200,000 home equity loan after the October Fed rate cut?
In acting to lower interest rates, the Fed is signaling that it views the slowing labor market as a more pressing concern than rising prices, as Fed Chair Jerome Powell underlined at his Jackson Hole address last month in Wyoming. Personal Consumption Expenditures (PCE) — the Fed’s preferred gauge of inflation — is forecast to level off at 3% this year, well above the central bank’s 2% annual target, before receding to 2.6% next year and 2.1% in 2027. The median projections for core inflation, which strips out volatile food and energy costs, forecast PCE of 3.1% this year. The Dow Jones Industrial Average, S&P 500 and tech-heavy Nasdaq ticked down slightly after Powell cast Der dow doubt on the likelihood of a further rate cut.
- Powell noted that a quarter-point cut isn’t likely to make a huge difference to the economy, but added, “You have to look at the path” of future cuts expected later this year and in 2026.
- The actual interest rate at which depository institutions trade federal funds with each other overnight.
- In recent months, Trump moved to fire one member of the Fed’s board of governors and secure Senate confirmation for another.
- “Concerns for the labor market’s health are rising,” said Cory Stahle, economist in the Indeed Hiring Lab, in a statement after the Fed’s decision.
Effective Federal Funds Rate
- The Fed cut reduces the federal funds rate — what banks charge each other for short-term loans — to between 4% and 4.25%, down from its prior range of 4.25% to 4.5%.
- “Unemployment and layoffs are relatively stable at historically low levels, which is encouraging, but they are unlikely to stay that way if labor market conditions deteriorate further.”
- The Federal Reserve on Wednesday lowered its benchmark interest rate by 0.25 percentage points — its first cut since December — as the U.S. grapples with a stalling labor market and slower economic growth.
- Last month, the Federal Open Market Committee (FOMC), a policymaking body at the Fed, projected two additional quarter-point rate cuts over the remainder of the year.
The policy marked the first interest rate adjustment since the outset of a weekslong government shutdown that threatens to cool economic activity, all the while sharply restricting the release of gold-standard federal data prized by Fed policymakers. Although the FOMC members were largely united on the size of today’s cut, their projections of future cuts show a difference of opinion about the path of monetary policy moving forward. Many of the group’s members don’t expect the panel to make any more cuts this year, according to the summary of economic projections. In a rare exception to its halt of economic data, the U.S. government issued an inflation report last week showing a continued acceleration of price increases, which may complicate the Fed’s attempt to revive the labor market. The Fed previously projected an additional quarter-point cut at its next meeting in December, but Fed Chair Jerome Powell on Wednesday voiced uncertainty about the outlook for another reduction of interest rates.
The Fed Funds Rate is one of the most influential interest rates in the U.S. economy, affecting everything from consumer loans to mortgages, savings accounts, and the overall economic health. Inflation has picked up in recent months while hiring has slowed, posing a risk of an economic double-whammy known as “stagflation.” Speaking on Wednesday, Powell acknowledged economic damage wrought by the government shutdown but downplayed its enduring impact. All of the voting FOMC members except one — Miran — voted in favor of the quarter-point cut, according to the central bank’s statement. Last month, a federal judge issued a preliminary injunction requiring the Fed to let Cook continue serving in her role as a governor of the Federal Reserve System as her lawsuit moves through the courts.
Federal law allows the president to remove a member of the Fed board “for cause,” though no president has attempted such a removal in the 112-year history of the central bank. Trump attempted to fire board member Lisa Cook, who sued Trump over her attempted ouster, saying the decision violated her legal protections as an employee at the independent federal agency. “A further reduction of the policy rate in December is not a foregone conclusion — in fact, far from it,” Powell told reporters at a press conference in Washington, D.C. To that end, he has sought to remove Fed Governor Lisa Cook from her seat on the central bank’s board, alleging that she engaged in mortgage fraud. She has denied committing fraud and challenged Mr. Trump’s authority to fire her, with an appeals court ruling Monday that Cook can keep her job.
The federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis. The Federal Open Market Committee (FOMC), which is the monetary policy-making body of the Federal Reserve System, sets a target for the federal funds rate as part of its monetary policy. The Federal Reserve steers the federal funds rate into its target range primarily by changing the interest rate paid on reserve balances and the interest rate of its overnight reverse repurchase facility. Changes in these rates influence the borrowing activity of banks and other financial institutions. The Fed cut reduces the federal funds rate — what banks charge each other for short-term loans — to between 4% and 4.25%, down from its prior range of 4.25% to 4.5%. The last time the central bank eased borrowing costs was in December 2024, when it also trimmed rates by a quarter of a percentage point.
Who sets the target range for the federal funds rate?
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If the Fed raises interest rates as a means of protecting against tariff-induced inflation, it risks tipping the economy into a downturn. On the other hand, if the Fed lowers rates to stimulate the economy in the face of a hiring slowdown, it threatens to boost spending and worsen inflation. Those economic conditions have put the Federal Reserve in a bind, since the central bank must balance a dual mandate to keep inflation under control and maximize employment. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products.