The US Federal Reserve has lowered its benchmark interest rate for the first time in 2025, cutting by 0.25 percentage points to a target range of 4%–4.25%. The move comes amid signs of a weakening labour market and still-stubborn inflation, raising fears of stagflation.

Announcing the decision, Fed Chair Jerome Powell said the balance of risks had shifted toward jobs. “The risks were clearly tilted toward inflation, but now you see a very different picture of the risks to the labour market,” he told reporters. Employers added just 22,000 jobs in August, while the unemployment rate has risen to 4.3%. Revisions to earlier data showed weaker hiring at the start of the year, though Powell said the figures remain “good enough” for the central bank to rely on.

The cut, however, was not unanimous. Stephen Miran, a new Trump-appointed governor and former White House economist, dissented in favour of a larger reduction. His vote reflects the political pressure surrounding the Fed, with President Donald Trump repeatedly criticising Powell for moving too slowly and demanding deeper cuts to boost growth ahead of next year’s election. Trump has tied his calls to the housing market, but Powell played down expectations that such a modest move would have much effect, noting that mortgage rates respond only indirectly to Fed policy.

Projections released alongside the decision indicate that two more quarter-point cuts are expected this year, bringing the federal funds rate down to roughly 3.6%. Still, Powell insisted the Fed is “not on a pre-set path” and that future moves will depend on how inflation and jobs evolve. He also acknowledged that a quarter-point “won’t make a huge difference” on its own, but argued that the direction of policy matters more than the single step.

Markets reacted coolly, with initial gains fading during Powell’s press conference as investors absorbed his cautious tone. Analysts warn the Fed is walking a tightrope, with inflation still above 3% while job creation slows sharply.