The Federal Reserve on Wednesday slashed interest rates by a quarter point even as officials remained conflicted over whether to prioritize stubborn inflation or weakness in the labor market.
Although they did not reach a full consensus, central bankers lowered rates to a new range of 3.5% to 3.75% as they remained more concerned about underlying strain in employment.
Austan Goolsbee and Jeffrey Schmid opposed the cut, while Stephen Miran voted for a more aggressive half-point cut – a bigger-than-usual group of “no” votes that could make it difficult for the Fed to issue more cuts next year.
Fed Chair Jerome Powell described the current situation as “challenging,” noting “downside” risks to the labor market and “upside” to prices. That combination of factors is known as “stagflation,” though Powell didn’t use the word.
He said the Fed has not made a decision about a rate cut in January, though a slight change in the body’s policy statement hinted at a slower rate-cut path.
The Fed said it would assess incoming data “in considering the extent and timing of additional adjustments” – though in previous months, it simply said, “in considering additional adjustments.”
Still, officials delivered a more upbeat outlook on the economy, projecting growth through 2026, which Powell attributed to resilient consumer spending and strong business investment in AI and data centers.
President Trump said Wednesday the Fed should have made a bigger cut and repeated his criticism of Powell, whom he has castigated for months.
The quarter-point rate cut was “a rather small number that could have been doubled — at least doubled,” Trump said at a White House event.
He also called Powell “a stiff,” faulting him for approving a “rather small” cut.
Most officials had predicted the body would issue another quarter-point cut in 2026, the same as the September forecast.
A mixed bag of data has shown inflation stubbornly above the Fed’s 2% goal, and while employers added outsize jobs in September, a prolonged hiring freeze pushed the unemployment rate to its highest level since October 2021.
“If you get away from tariffs, inflation is in the low twos,” Powell said, noting that most of the “overshoot” in inflation is due to the sweeping levies. “It’s really tariffs.”
The record-breaking government shutdown halted data collection, causing delays in the release of key economic reports. October’s unemployment rate, meanwhile, will never be published.
Following the decision, the Dow Jones Industrial Average jumped nearly 500 points, or 1.1%, while the S&P 500 and Nasdaq rose 0.7% and 0.3%, respectively.
Policymakers have not reached a full consensus since their July meeting. Miran, President Trump’s former advisor, also voted for a more aggressive half-point cut at the Fed’s September meeting. Schmid, president of the Kansas City Federal Reserve, opposed a cut altogether.
“It’s not like the normal situation where everyone agrees with the direction and what to do … and I think that’s only inherent in the situation,” Powell said, emphasizing that discussions between policymakers have been “thoughtful” and “respectful.”
Trump was set to start his final round of interviews this week for a successor to Powell, whose term as chair ends in May.
White House economic advisor Kevin Hassett is largely viewed as the frontrunner.
When asked Wednesday whether the president’s search for a new chair is making his job more difficult, Powell simply said, “No.”
