Fed cuts rate for first time this year 

David Richards: Fed’s action indicates taking preemptive measures to stem job market decline. 

The Federal Reserve on Sept. 17 made a widely anticipated rate cut, its first in 2025, amid concerns about the U.S. labor market. 

In an 11-to-1 vote, the Federal Open Market Committee lowered its benchmark lending rate by a quarter percentage point. With the cut, the federal funds rate now has a range between 4% and 4.25%. 

Fed governor Stephen Miran, who was recently installed by President Donald Trump, was the only committee member voting against the quarter-point move. He advocated for a half-point cut. 

“Uncertainty about the economic outlook remains elevated,” the FOMC said in a statement. “The committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.” 

In the statement, the committee further noted job gains have slowed, while the unemployment rate has edged up but remains low.  

Earlier this month, the Labor Department reported employers added just 22,000 jobs in August and the unemployment rate ticked up to 4.3% from 4.2%, marking its highest level since 2021.  

David Richards, senior portfolio manager at Commerce Trust, a division of Commerce Bank, said the decision and size of the cut was no surprise to him. However, he said the Fed has tried to measure or anticipate inflation with a “real big cloud over their head of uncertainty” this year, as it pursues that dual mandate of price stability and maximum employment. 

“I would argue both of those metrics have been really cloudy over the last two, three quarters,” Richards said. “Inflation over the last two quarters since April, May timeframe has been trending in the wrong direction. Since 2022, we’ve been trending down to the target rate of 2%, and suddenly we began to reverse course. In almost every measure of inflation, it shows that we’re approaching 3% instead of 2%.” 

The consumer price index posted a seasonally adjusted 0.4% increase in August, the biggest gain since January, according to the U.S. Bureau of Labor Statistics. That put the annual inflation rate at 2.9%, up 0.2% from the prior month and was the highest level since January.  

During a Sept. 17 news conference, Fed Chair Jerome Powell characterized the FOMC decision as a “risk management cut,” noting there wasn’t widespread support for a 50-basis point cut. 

“I think we were right to wait and see how tariffs and inflation and the labor market evolved,” he said. “I think we’re now reacting to the much lower level of job creation and other evidence of softening in the labor market.” 

The central bank had been holding the line on interest rates as inflation has remained above the Fed’s 2% goal. Powell has expressed concern that tariffs put in place by the Trump administration could result in surging prices. 

Still, Richards said the Fed’s Sept. 17 action seemed to indicate it was taking some preemptive measures to stem the job market decline.  

“The labor market, while it’s deteriorated or weakened over the last two, three quarters, you could argue from a historical standpoint, it’s still pretty good,” Richards said. “A 4.3% unemployment rate is not terrible.” 

The median estimate from all Fed officials is that there will be two more rate cuts this year, up from a prior estimate released in June. Richards said the Fed’s “dot plot,” a chart updated quarterly to show each official’s prediction regarding the direction of the central bank’s benchmark rate, shows a wide disparity. Most of the officials are split between one or two rate cuts for the remainder of the year. The Fed’s final two meetings of the year are in October and December.  

“I believe the Fed when they say it is data dependent,” Richards said of future rate cuts this year. “So, we’ll continue to get labor numbers in on a monthly basis, and we’ll get another quarter of inflation numbers that inevitably will drive their decision.”