Under-fire US Federal Reserve chairman Jerome Powell has maintained that his board “were right to wait” before introducing Wednesday’s US interest rate cut of 0.25 per cent despite intense pressure from Donald Trump to bring rates down throughout the year.
In what is the first rate cut since December 2024, Mr Powell said the decision was made “in light of the shift in the balance of risks”. He outlined a curious economic picture which reflected a slowdown in consumer spending, persistently weak activity in the housing sector and a marked slowdown in both the supply of and demand for labour against the spectre of inflation continuing to remain stubbornly high.
Unemployment in the US “edged up” to 4.3 per cent in August while GDP rose by 1.5 per cent in the first half of 2025, compared to last year’s growth of 2.5 per cent down. .
Mr Powell projected that GDP will rise by 1.6 per cent in total in 2025. The cut leaves the interest rate at 4.00-4.25 per cent, significantly above the Fed’s goal of 2 per cent.
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Mr Powell said the purpose of the meeting had been focused on how to “achieve the dual mandates of maximum employment and stable prices for the benefit of the American people” against an economic backdrop he described as “such an unusual situation”.
He added: “Ordinarily when the labour market is weak, inflation is low. And when the labour market is strong that’s when you’ve got to be careful about inflation. We have a situation where there is two-sided risk. And that means there is no risk-free path. So, it is quite a difficult situation for policy makers.
“It is not at all surprising to me that you have a range of views. It is not so much having different views about the path for the economy. But it is also partly about what is the right thing to do in light of the tension between the two goals.”
The decision coincided with an afternoon when US president Donald Trump was distracted by his state visit to Britain.
The president has unleashed a series of ferocious broadsides against Mr Powell- whom he nominated as chair in his first term- since he returned to office in January. It is unlikely that the 0.25 percentage point cut will assuage his calls for further short cuts before the end of the year.
The newest member of the Fed board, Steve Miran, and President Trump’s pick to join the board after the August resignation of Adriana Kugler, was the only member to dissent from the decision. Federal projections forecast that one official, most likely Mr Miran, would push for a cut of half a percentage point.
Mr Miran, chair of the White House council of economic advisers, was sworn in minutes before the meeting began, thus becoming the first person since the creation of the modern Fed, in the 1930s, to sit on both an executive branch board and the central bank.
“We are strongly committed to maintaining our independence and beyond that I really don’t have anything to share,” Mr Powell said when asked about Mr Miran’s appointment to the board.
Asked about a recent Gallup poll reflecting that Americans now have greater confidence in the Fed when it comes to making right decisions for the economy than the president, Mr Powell remained diplomatic, saying: “We’re not going to get distracted by anything. We are just going to keep doing our jobs. I would say we are doing our work exactly as we always have now.”
