The Federal Reserve has yielded to President Donald Trump’s pressure by lowering US interest rates for the first time since he returned to office in January. Eleven of the Fed board’s 12 voting members backed the quarter-point cut on Wednesday night, which took the official US interest rate to a range of 4% to 4.25%.
The decision comes hours before the Bank of England will deliver its latest verdict on UK interest rates. By contrast, the Bank is likely to keep its benchmark interest rate unchanged at 4% on Thursday, amid fears that inflation is not yet under control in Britain.
In the US, inflation is stuck well above the Fed’s 2% target and could yet kick higher if Mr Trump’s tariffs drive up prices. However, unlike the BoE, the Fed also has a mandate to promote job growth, and Mr Powell said the rate cut reflected the worsening jobs market.
“The labour market is really cooling off and… it’s time to take that into account in our policy,” Mr Powell told reporters, warning of a “curious balance” between falling labour supply and demand.
Markets are anticipating another couple of cuts from the Fed by the year’s end, with more to follow in 2026. However, Mr Powell said his colleagues’ forecasts were “subject to uncertainty” and insisted monetary policy was “not on a pre-set path”.
The Fed’s fear is that if it cuts rates too quickly, prices could start rising faster. Inflation was 2.9% in August, the highest since January. Mr Trump is adamant that inflation has been tamed and has been looking for bigger, earlier cuts.
