Dive Brief:

• The Federal Reserve on Wednesday trimmed the benchmark interest rate by a quarter point to a range between 4% and 4.25%, citing weakness in the job market and forecasting two more quarter-point cuts this year.
• In a median projection, Fed officials estimated that they will reduce the federal funds rate to 3.6% by the end of 2025, or 0.3 percentage point lower than their June projection. They marked up their forecast for economic growth this year to 1.6% from 1.4% in June, while leaving their end-of-year projections for unemployment and inflation unchanged.
• “The committee is attentive to the risk to both sides of its mandate and judges that downside risks to employment have risen,” the Federal Open Market Committee said in a statement after a two-day meeting. “Job gains have slowed,” the FOMC said, noting that “uncertainty about the economic outlook remains elevated.” Fed Governor Stephen Miran cast a dissenting vote, favoring a half-point reduction to the main interest rate.

Dive Insight:

Policymakers reduced borrowing costs for the first time in 2025 as concerns about a decline in hiring prompted them to put on hold long-running efforts to curb inflation to their 2% target.

The job market in recent weeks has flashed several warning signs.

The Bureau of Labor Statistics last week announced a record revision of job growth during the 12 months through March. Payroll growth will probably be slashed by 911,000, or 0.6%, the BLS said in a preliminary report.

Also, overall U.S. hiring fell in August, and unemployment rose to 4.3% from 4.2% in July, the Labor Department said this month.

At the same time, inflation accelerated last month to the fastest pace this year. The Consumer Price Index rose 0.4% in August — 2.9% on an annual basis — after a 0.2% monthly gain in July, the Bureau of Labor Statistics said last week.

Based on their median estimates, Fed officials expect that the unemployment rate will end 2025 at 4.5%, the same as their June forecast. They forecast that their preferred measure of inflation — the personal consumption expenditures price index less volatile food and energy prices — will end the year at 3.1%, also the same as their June estimate

The current mix of faster inflation and slower hiring complicates efforts by the Fed to meet its dual congressional mandate to ensure both stable prices and maximum employment.