The Federal Reserve lowered its benchmark interest rate by a quarter of a percentage point on Wednesday, a widely anticipated move that comes amid a worsening data blackout, a cooling labor market, and relentless political pressure from President Donald Trump.<\/p>\n
The decision brings the Fed\u2019s policy rate down to roughly 3.75% to 4.0%\u2014its lowest level in three years\u2014and marks the second rate cut since Trump\u2019s return to office. Markets had fully priced in the move: CME\u2019s FedWatch tool<\/a> showed a near-100% probability of a 25-basis-point reduction heading into the meeting.<\/p>\n In its statement, the Federal Open Market Committee said, \u201cEconomic activity has been expanding at a moderate pace,\u201d but acknowledged that job gains have slowed, and the unemployment rate has edged higher, even if it \u201cremains low.\u201d Inflation, it noted, \u201chas moved up since earlier in the year and remains somewhat elevated.\u201d<\/p>\n The Fed said it continues to seek \u201cmaximum employment and inflation at the rate of 2% over the longer run,\u201d and described uncertainty about the economic outlook as \u201celevated.\u201d The committee judged that \u201cdownside risks to employment rose in recent months,\u201d prompting the quarter-point cut and a decision to end the reduction of its securities holdings on Dec. 1, which is an early signal that it\u2019s shifting from tightening to support mode.<\/p>\n Ten members, including Chair Jerome Powell and Vice Chair John Williams, voted in favor of the cut. Two dissented: Trump appointee Stephen Miran, who preferred a more dovish, larger half-point cut, and Jeffrey Schmid, president of the Kansas City Fed, who wanted no change at all.<\/p>\n Balancing act<\/p>\n The Fed is in an awkward balancing act between the two halves of its dual mandate: keeping prices stable while sustaining employment. There\u2019s \u201cno risk-free path,\u201d Powell has emphasized<\/a> repeatedly.<\/p>\n That\u2019s because inflation may be cooling on paper,<\/a> but policymakers caution that it\u2019s still above the Fed\u2019s 2% target, and that the recent moderation largely reflects prices rising more slowly rather than falling. Additionally, economists have said that they expect inflation to tick up in the fourth quarter as companies are forced to pass increased costs from tariffs on to consumers.<\/p>\n At the same time, Powell has often said<\/a> that the \u201cdownside risks to employment have risen,\u201d meaning that the labor market is more of a concern to him than inflation. Powell has described<\/a> the current jobs market as a \u201clow-hire, low-fire\u201d environment, where firms are reluctant to expand payrolls but equally hesitant to lay people off.\u00a0<\/p>\n \u2018Flying blind\u2019<\/p>\n Powell is trying to manage rising unemployment risks without access to the very data that would normally guide those decisions. For the first time in the modern history of the Federal Open Market Committee, the Fed acted without access to the monthly jobs report<\/a>, which is especially critical given that the job market is \u201csputtering,\u201d Moody\u2019s Analytics chief economist Mark Zandi wrote<\/a> on X<\/a>.<\/p>\n The ongoing government shutdown has halted<\/a> the release of key statistics, from nonfarm payrolls to consumer spending. Plus, in an unexpected blow, payroll processor ADP quietly stopped sharing its private employment data with the central bank in August, depriving Fed economists of what former Bureau of Labor Statistics commissioner Erica Groshen called \u201can essential real-time window\u201d into the labor market.<\/p>\n \u201cIt\u2019s very concerning,\u201d Groshen told Fortune, adding that she worried that the Fed was \u201cflying blind.\u201d<\/p>\n \u201cIf policymakers build systems around data that can vanish overnight, that\u2019s a real vulnerability for economic governance,\u201d the economist explained.<\/p>\n However, there was one hint of light in the data: Bureau of Labor Statistics employees were brought back in order to deliver the inflation report, which showed the rate cooling to 3% in September. The figures<\/a>, more than a week late, showed that price pressures are easing even as Trump\u2019s new tariffs<\/a> on goods from China, Brazil, and others ripple through the economy. Core inflation, which excludes volatile food and energy prices, rose 3% year over year, the slowest pace since early spring.<\/p>\n Looking ahead to Powell\u2019s speech<\/p>\n