Key Takeaways
- First Cut of the Year: The Fed lowered its benchmark rate by 25 basis points to a 4%–4.25% range, the first cut since December 2024.
- Labor Market Weakness: Policymakers cited slowing job growth and rising unemployment as reasons to prioritize employment risks over inflation.
- Tariffs Driving Prices: Powell admitted tariffs are adding to inflation, but insisted the Fed’s job is to ensure these pressures don’t become permanent.
The Federal Reserve blinked on Wednesday, delivering its first rate cut of 2025 as a softer labor market finally outweighed stubbornly elevated inflation. Policymakers voted 11-1 to trim the benchmark federal funds rate by 25 basis points, bringing the target range down to 4% to 4.25%.
It’s the Fed’s first cut since December 2024, after five straight meetings of holding firm. The move comes as hiring slows, unemployment ticks up, and businesses wrestle with shifting trade and immigration policies. Inflation, meanwhile, remains sticky—up 2.9% on the Fed’s preferred measure—with tariffs pushing goods prices higher.
Fed Chair Jerome Powell acknowledged the challenge of steering both sides of the Fed’s dual mandate: maximum employment and stable prices. “Overall, the marked slowing in both the supply of and demand for workers is unusual. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” he said.
Powell admitted tariffs are contributing about 0.3 to 0.4 percentage points to core inflation, but insisted the Fed’s “job is literally to make sure” those one-time price hikes don’t spiral into long-term inflation.
Critics say the Fed has been too slow to adapt—first overshooting with years of cheap money, then dragging its feet when inflation spiked. Now, under pressure from President Trump to keep the economy strong heading into 2026, Powell is walking a tightrope between politics and policy.
The reality? Families and entrepreneurs need relief. High borrowing costs choke investment and slow job growth, while unchecked inflation robs workers of purchasing power. Cutting rates is a start, but Washington must remember: true prosperity doesn’t come from central bankers—it comes from unleashing America’s free market, lowering barriers, and trusting entrepreneurs to do what they do best.