The U.S. Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday and indicated it will steadily lower borrowing costs for the rest of this year, as policymakers responded to concerns about weakness in the job market.
The move won support from most of U.S. President Donald Trump's central bank appointees. Only new governor Stephen Miran, who joined the Fed on Tuesday and is on leave as the head of the White House's Council of Economic Advisers, dissented in favour of a half-percentage-point cut.
"There wasn't widespread support at all for a 50 basis point cut today," Fed chair Jerome Powell told reporters at a press conference following the bank's two-day meeting.
"We've done very large rate hikes and very large rate cuts in the last five years, and you tend to do those at a time when you feel that policy is out of place and needs to move quickly to a new place."
The rate cut, along with projections showing that two others are anticipated before the end of this year, indicate Fed officials have started to downplay the risk that the administration's trade policies will stoke persistent inflation, and are now more concerned about weakening growth and the likelihood of rising unemployment.
"Changes to government policies continue to evolve, and their effects on the economy remain uncertain," Powell said while explaining the central bank's decision.
"A good part of the slowing likely reflects a decline in the labour force due to lower immigration and lower labour force participation," he said.
Economists have warned that the Trump administration's immigration policies, which include the mass deportation of migrants, could reduce the size of the country's labour force.
"Even so, labour demand has softened and the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant," Powell said.
Markets expecting more rate cuts by end of year
The cut, the first move by the policy-setting Federal Open Market Committee since December, moves the policy rate to the 4-4.25 per cent range.
"The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen," the Fed said in its policy statement. "Job gains have slowed, and the unemployment rate has edged up."
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New economic projections showed policymakers at the median still see inflation ending this year at three per cent, well above the central bank's two per cent target, a projection unchanged from the Fed's last set of forecasts published in June.
"Since April, to me, the risks of higher and more persistent inflation have probably become a little less, and that's partly because the labour market has softened, GDP growth has slowed," Powell said on Wednesday.
Tariffs are pushing up price pressures, but it increasingly looks like it will be "a one time price increase, as opposed to creating an inflationary process," he said.
The projection for unemployment was also unchanged at 4.5 per cent and economic growth slightly higher at 1.6 per cent versus 1.4 per cent.
Stocks turned modestly higher after the decision, while the dollar fell against a basket of major trading partners' currencies.
Treasury yields were little changed and futures markets saw more than a 90 per cent probability of another rate cut at the Fed's next meeting in late October.