Interest rate reductions within the year, sparked by a deteriorating job market, manifested by the Federal Reserve
The Federal Reserve has announced a 25 basis points interest rate cut, bringing the federal funds rate to a range of 4% to 4.25%. This decision comes after the Fed left rates unchanged at its first five meetings this year.
The move follows a slowdown in hiring and elevated inflation, as job gains have slowed and the unemployment rate has risen but remains relatively low. Economic data has shown a slowdown in hiring, and US job growth through March was revised lower by 911K. Inflation has risen and remains somewhat elevated, presenting a challenge for the Fed in achieving its dual mandate.
Tariffs have contributed around 0.3 to 0.4 percentage points to the current core PCE inflation reading of 2.9%. However, the pass-through of tariff-induced price hikes to consumers has been slower and smaller than expected. The Fed believes the upward trend in inflation is a one-time price increase from tariffs, but it can't take that for granted as it weighs monetary policy.
Tariff-induced price hikes have presented a challenge for the Fed, and Chair Jerome Powell reiterated that they could represent a more persistent inflationary challenge. In a speech at the Fed's annual Jackson Hole conference, Powell opened the door to a rate cut.
The rate cut comes amidst allegations against Fed Governor Lisa Cook of mortgage rates fraud. Trump is attempting to fire Cook over these allegations, but Cook has not been charged with any crimes related to the allegations. Cook participated in the meeting after an appellate court upheld a lower court ruling that temporarily blocked Trump’s effort to fire her.
The Senate confirmed Stephen Miran to the Fed Board ahead of the crucial rate cut meeting. Stephen Miran took office as a Federal Reserve governor in September 2025, filling the vacancy left by Adriana Kugler. One policymaker, Jeffrey Miran, dissented from the FOMC's 11-1 vote, preferring a 50-basis-point cut.
Powell declined to comment on the case involving Trump's effort to fire Cook, assuring that decisions are based on economic conditions instead of political considerations. The Fed chair emphasised that the central bank's independence is crucial in making unbiased decisions for the betterment of the economy.
Goods inflation was negative last year but is up 1.2% over the past year. The Fed will continue to monitor economic data closely and adjust monetary policy as necessary to maintain price stability and maximum employment.
