The Federal Reserve announced a 25 basis point rate cut as scheduled. The dot plot indicates that there may be two more rate cuts this year.

The Federal Reserve announced on Wednesday that it will lower the target range for the federal funds rate by 25 basis points to 4.00%-4.25%, a move that aligns with market expectations. The Federal Open Market Committee (FOMC) approved this decision by a vote of 11-1, indicating a higher level of internal consensus than anticipated on Wall Street. Newly appointed board member Milan was the only dissenting vote, advocating for a 50 basis point rate cut. Board members Bowman and Waller were previously thought to potentially oppose a rate cut, but ultimately supported the 25 basis point reduction proposal. These three board members were all appointed by President Trump, who had been pressuring the Fed throughout the summer to cut rates quickly and significantly, rather than just the traditional 25 basis points. In a statement after the meeting, the FOMC noted that economic activity had slowed and explicitly stated that "job growth had slowed," while acknowledging that inflation "had risen somewhat and was still relatively high." This indicates a conflict between the dual goals of price stability and full employment. The statement also emphasized that "uncertainty about the economic outlook remains high" and that the committee is closely monitoring risks at both ends of its dual mandate, recognizing that downside risk to employment has increased. Powell explained at a press conference that this rate cut was a "risk management" cut, aimed at adjusting monetary policy from its previous "moderately tight" level to a more neutral position, and emphasized that the Fed will continue to make decisions on a meeting-by-meeting basis, flexibly adjusting policy based on the latest data. The dot plot shows that most officials expect to cut rates once each at the October and December meetings, leaving a total of 50 basis points of room for additional cuts this year. Ten participants support two more cuts this year, while nine support just one. The lone outlier (likely from Milan) suggests an additional 125 basis points of cuts this year, indicating a very dovish stance. Simon Dangoor, head of macro strategies at Goldman Sachs Asset Management, noted, "This shows that the doves within the FOMC now dominate. Unless there is a significant improvement in inflation or the labor market, the Fed is likely to maintain its current accommodative path." The rate cut and forward guidance largely align with market expectations, but there was volatility in the Treasury market. Short-term Treasury yields initially fell but quickly rebounded after Powell's cautious remarks, with the 2-year Treasury yield rising 5 basis points to 3.55% and the dollar rising in tandem. Tracy Chen, portfolio manager at Brandywine Global Investment Management, said, "The market had been betting on the Fed cutting rates significantly to ward off a recession, but this action seems more like an insurance move rather than aggressive easing." The labor market has become a key factor in policy adjustments. In August, the U.S. unemployment rate rose to 4.3%, its highest level since October 2021, and job growth has nearly stagnated this year. Recent revisions from the Bureau of Labor Statistics show that the U.S. added nearly 1 million fewer jobs in the 12 months ending in March 2025 than previously reported. These data have increased the FOMC's concerns about a deteriorating labor market. Waller in particular is focused on the softening labor market and believes that easing policy now is necessary to prevent further issues in the future. Waller is widely seen as a potential successor after Powell's term ends in May 2026. Prior to the meeting, Trump had been pressuring for larger rate cuts and appointed Milan to the Fed board. This move raised concerns about the Fed's independence. Milan has openly criticized Powell and other board members and is seen as a supporter of Trump's policies. Another board member, Cook, is embroiled in legal disputes with the Trump administration over fraud allegations in mortgage markets, but a court recently ruled that Trump cannot dismiss him. Cook voted in favor of the 25 basis point rate cut at this meeting. Market analysts believe that the Fed's action reflects a delicate balance between inflation pressures and weakening job market conditions. Bret Barker, co-head of global rates at TCW Group, said, "This rate cut is not hawkish, but it is more cautious than the market expected. Powell still defines it as a 'risk management' cut and has not hinted at starting a cycle of consecutive rate cuts." Ryan Detrick, chief market strategist at Carson Group, said, "The Fed's focus has shifted clearly towards concerns about a slowing labor market rather than inflation. This opens the door for further rate cuts this year." Gina Bolvin, president of Bolvin Wealth Management, pointed out, "The 25 basis point rate cut clearly signals that the Fed is taking action in response to a weak job market and persistent inflation, but this is a gradual adjustment rather than a complete shift." In terms of market reaction, the S&P 500 index briefly rose before falling, eventually closing down 0.1%, with tech stocks under pressure. Art Hogan, chief market strategist at B. Riley Wealth, said, "The market had already priced in this decision, so there may be a 'buy the rumor, sell the fact' trading behavior in the short term." Bret Kenwell, strategist at eToro, added, "The Fed is fully in line with expectations, and the market will focus more on upcoming data." Ronald Temple, chief market strategist at Lazard, cautioned investors not to overinterpret the dot plot, as upward inflation could change the future policy path at any time. Powell acknowledged at the press conference that tariffs imposed by Trump could bring new inflation pressures that need to be closely monitored. He reiterated that the Fed will be data-dependent and maintain independence, saying, "There are no risk-free paths now, we must balance controlling inflation and maintaining employment." Jim Baird, chief investment officer at Plante Moran Financial Advisors, pointed out, "Improving employment conditions have become the top priority, and the path back to the 2% inflation target is elongating. The Fed is willing to tolerate slightly higher inflation in the short term in exchange for stability in the labor market."