Fed cuts key interest rate, signals two more this year

WASHINGTON - The Federal Reserve cut its key interest rate by a quarter-point and indicated that two more cuts could follow before the end of the year.

The Fed has been under relentless pressure from President Donald Trump to cut rates. The central bank has held rates steady since late 2024 over worries that the Trump administration’s unpredictable tariff policies will reignite inflation.

What they're saying:

"Downside risks to employment have risen," the Fed said in a statement after its two-day meeting.

Fed officials also signaled that they expect to reduce their key rate twice more this year, but just once in 2026, which may disappoint Wall Street. Before the meeting, investors had projected five cuts for the rest of this year and next.

The other side:

Just one Fed policymaker dissented from the decision: Stephen Miran, who President Donald Trump appointed and was confirmed by the Senate in a rushed vote late Monday just hours before the meeting began. Many economists forecast additional dissents, and the outcome suggests that Powell was able to patch together a show of unity from a committee that includes Miran and two other Trump appointees from his first term.

The backstory:

The move is the Fed’s first cut since December and lowered its short-term rate to about 4.1%, down from 4.3%. Fed officials, led by Chair Jerome Powell, had kept their rate unchanged this year as they evaluated the impact of tariffs, tighter immigration enforcement, and other Trump administration policies on inflation and the economy.

Yet the central bank’s focus has shifted quickly from inflation, which remains modestly above its 2% target, to jobs, as hiring has grounded nearly to a halt in recent months and the unemployment rate has ticked higher. Lower interest rates could reduce borrowing costs for mortgages, car loans, and business loans, and boost growth and hiring.

Where does inflation stand now?

Dig deeper:

Inflation rose last month as the price of gas, groceries and airfares jumped while new data showed applications for unemployment aid soared, putting the Federal Reserve in an increasingly tough spot as it prepares to cut rates at its meeting next week despite persistent price pressures.

Consumer prices increased 2.9% in August from a year earlier, the Labor Department said Thursday, up from 2.7% the previous month and the biggest jump since January. Excluding the volatile food and energy categories, core prices rose 3.1%, the same as in July. Both figures are above the Federal Reserve’s 2% target.

RELATED: Inflation rose last month amid weakening job market: How will the Fed respond?

A separate government report Thursday showed that weekly applications for unemployment aid jumped 27,000 to 263,000, the highest in nearly four years. Requests for jobless benefits are a proxy for layoffs. Recent reports have also showed that hiring has weakened dramatically this year and was lower than previously estimated last year.

The data raises the specter of "stagflation," a trend that last bedeviled the U.S. economy in the 1970s. The term refers to a period of slower growth, higher unemployment along with rising inflation. It is unusual because a weak economy typically keeps inflation in check.

Trump tries to remove Fed governor Lisa Cook 

Dig deeper:

Federal Reserve Governor Lisa Cook is asking a U.S. appeals court to reject the Trump administration’s latest bid to remove her from her post.

In a filing with the court Saturday, attorneys on behalf of Cook asked the court to refuse an emergency request by the Trump administration for a stay of a lower court ruling that would clear the way for Trump to remove Cook from the Federal Reserve’s board of governors.

RELATED: Judge blocks Trump from firing Fed Governor Lisa Cook

What they're saying:

Lawyers for Cook argue that the Trump administration has not shown sufficient cause to fire her, and stressed the risks to the economy and country if the president were allowed to fire a Fed governor without cause.

The other side:

Trump has accused Cook of mortgage fraud because she appeared to claim two properties as "primary residences" in July 2021, before she joined the board. Such claims can lead to a lower mortgage rate and smaller down payment than if one of them was declared as a rental property or second home.

Cook has denied the charges and sued the Trump administration to block her firing.