The Fed cuts interest rates again to protect jobs as economic risks grow

The Federal Reserve once again cut its benchmark interest rate, aiming to breathe some life into a sluggish labor market and prevent unemployment from rising by lowering borrowing costs.

The Federal Reserve’s policy committee voted to cut the federal funds rate by a quarter of a percentage point to a range of 3.75% to 4% on Wednesday, after a cut of the same size in September. In recent months, Fed officials have expressed growing concerns about the health of the labor market as job growth slows. This has led them to prioritize boosting employment over fighting inflation, which remains above the Fed’s target at an annual rate of 2%. This move was widely expected in financial markets.

Wednesday’s cut confirmed that boosting employment, at least for now, remains the Fed’s primary goal, with the fight against inflation pushed to the back burner. Before September, Fed officials held interest rates steady all year in hopes of bringing inflation down to a 2% target.

The federal funds rate affects borrowing costs on all types of loans, and is the primary tool the Fed uses in pursuing its dual mandate from Congress of keeping inflation low and employment high.

““Uncertainty about the economic outlook remains high,” the Federal Open Market Committee wrote in a statement little changed from its official statement at its September meeting. “The committee is concerned with the risks to both sides of its dual mandate and believes that downside risks to employment have risen in recent months.”

The decision was not made unanimously, as two Fed governors differed from the other 10 voters in opposite directions. Stephen Meiran, appointed by President Donald Trump to the Fed’s board, voted in favor of cutting interest rates more sharply, by half a percentage point, while Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, favored keeping the interest rate steady.

Fed officials made the move despite lacking critical information about inflation and employment. Most economic data released by government statistical agencies was delayed due to the ongoing government shutdown that began on October 1. A notable exception was the September Consumer Price Index, which showed inflation remaining above the Fed’s target but rising less than expected, giving the Fed the green light to cut interest rates.

The federal funds rate is directly related to the rates that banks charge for credit cards, auto loans, and other short-term debt, and indirectly affects the rates on mortgages and other long-term loans. Wednesday’s move brings it to its lowest levels since December 2022.

Trump’s economic policies created a dilemma for the Fed: The tariffs pushed up consumer prices, putting upward pressure on inflation, while at the same time creating uncertainty that hindered job growth.