The Federal Reserve approved on Wednesday, September 17, its first type cut since December, being 25 basic points, which place the price of money in the range of 4% to 4.25%. The institution indicated that it foresees “a constant rhythm” of new sales in the remainder of the year, with the focus on a labor market that “loses traction” and an inflation even above the objective. The turn, long anticipated by the markets, arrives after several months of mixed data and in a political climate of maximum pressure on the central bank.
In the press conference, Jerome Powell justified the movement as “a risk management measure”, a formula with which the Fed seeks to “balance its double mandate” before signs of deceleration in employment. The president of the Central Bank stressed that it is a “prudent” step and not an abrupt turn, a message aimed at those who claimed a greater cut. “The decision was widely supported,” he said, and added that the committee “will continue to be dependent on the data.”
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The decision was not unanimous. Stephen Look, newly incorporated into the Governor Council, voted for a reduction of 50 basic points. Its dissent, unusual at a premiere, also advanced a path of more aggressive cuts in its individual projections with respect to the rest of the members. With the type of reference at 4%–4.25%, the majority of the committee contemplates “more gradual reductions” until the end of the year if labor market cooling and the decrease in price pressures are consolidated.
The macro diagnosis of the Fed maintains for the end of 2025 an inflation of 3%, a 4.5% strike and a 1.6% growth in annual rate, figures that reflect a lower dynamism environment with still tense prices. Powell admitted that the risks “lean” now towards employment, although he warned that “complying with inflation would be a mistake.” In the words of the president, the objective is to “avoid unnecessary damage to the labor market” without “rekindling” the price increase.
In the background Donald Trump’s economic policy, particularly tariffs, which have increased a part of the basket and hinders inflation reading. In August, the consumer price index rebounded to 2.9% year -on -year, while unemployment rose to its highest level from 2021, a combination that some economists describe as “risk of stagning.” Powell admitted that tariffs “have raised some prices”, although their general effect “is yet to calibrate.”
The political pulse with the Fed adds noise to the signal. Trump has repeatedly claimed “much deeper” cuts – “should listen to intelligent people like me,” he said this week – and tried, without success, to dismiss Governor Lisa Cook, a movement slowed down by the courts. Cook voted with the majority. “The Committee is focused on its legal objectives,” Powell repeated, on an explicit defense of institutional independence in full storm.
The markets received the cut with crossed readings with punctual stocks in the stock market, a somewhat stronger dollar and stable treasure yields, while the analysis houses transferred their routemays to a scenario of “two additional movements” before closing the year. Powell himself avoided “precompromising” with a fixed path and insisted that each meeting will be “an examination of the data.” In the points chart, the median moves to a path of gradual relief against June, with a point (that of Miran) notably below the cloud.
The international contrast is clear. Last week, the European Central Bank maintained its type of reference without changes and the Bank of England is inclined to do the same, with even higher inflation than the American. The Fed, therefore, is unmarked with a strategy that aims to “accommodate” the deterioration of employment without losing sight of price expectations that follow over 2%. “It’s about adjusting, not accelerating,” summed up a high position consulted by this newspaper.
In the domestic front, the signal for families and companies is clear but gradual. Lower official types tend to reduce consumer credit, mortgages at a variable type and the financing of circulating, although the transmission takes to notice and depends on the conditions of each entity. “The relief will not be immediate or linear,” they warn in the industry, which recalls that the banks adjust their offers to the bond curve, to the risk premium of each client and the perspectives of the Fed for the next meetings.
The great issue that opens is whether “caution” demonstrated today will suffice to avoid a greater loss of employment without “resurrecting” inflation. Fed itself admits that uncertainty “remains high” and that the reading of the data is complicated by changes in commercial and immigration policy. With “two more cuts in the radar” and an committee attentive to each publication, the Central Bank tries to navigate between “the hammer” of prices and “the yunque” of work. Market digestion will say if Powell’s fine scalpel was enough or if the economy will require a more forceful dose.