Fed Cuts US Interest Rates Again Amid Labour Market Uncertainty

The English Chronicle Online.The English Chronicle Desk

Published: 29th July 2025

The US Federal Reserve has once again reduced its key interest rate, moving decisively to stimulate a slowing labour market even as the nation contends with a near-month-long government shutdown. Economists have described the decision as the Fed “flying blind,” given the lack of up-to-date official employment data due to the shutdown, which has delayed the release of critical reports.

On Wednesday, the central bank announced a 0.25 percentage point cut, bringing the federal funds rate to a range of 3.75% to 4%. This marks the second reduction in as many months, following the Fed’s initial cut last December. The move was widely anticipated by markets, which hope that lower borrowing costs will bolster hiring and overall economic growth.

The decision was not without dissent. Two members of the Federal Open Market Committee voted against the reduction. Stephen Miran, temporarily on leave from his role on former President Donald Trump’s Council of Economic Advisers, advocated for a larger 0.5 percentage point cut, while Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, preferred to keep rates unchanged.

Slowing job growth has been a key factor prompting the Fed to restart its rate-cutting cycle. In its policy statement, the central bank acknowledged that “job gains have slowed this year” and that the unemployment rate, although still low through the summer, had “edged up.” Analysts have noted that the ongoing government shutdown, now approaching one month, has severely limited access to official labour data, leaving central bankers reliant on private-sector indicators. Payroll data from ADP suggested that the US economy lost 32,000 jobs in September, reinforcing concerns about a cooling job market.

Inflation data for September, however, offered some relief to policymakers. The Labor Department reported a year-over-year increase of 3%, slightly below expectations. While inflation remains above the Fed’s 2% target, the milder reading allowed policymakers to focus more on supporting employment rather than containing price growth. Earlier this year, tariffs had stoked fears of rising consumer costs, but the recent moderation in inflation has shifted the central bank’s attention toward labour market stabilization. Bank of America economists observed that, despite elevated prices, “policymakers are slightly more focused on downside risks to the employment mandate.”

The latest cut reduces the key lending rate to its lowest level in three years and has raised speculation about further reductions before the end of the year. Wall Street currently anticipates a strong probability of an additional quarter-point cut at the Fed’s December meeting, with investors pricing in over an 80% chance of such a move, according to CME FedWatch data.

However, much could change in the coming months. Up to three new jobs reports are expected before the December meeting, and shifts in employment figures could significantly influence the Fed’s policy outlook. Michael Feroli, chief US economist at JP Morgan, noted that these upcoming data releases could alter perceptions of the labour market, either reinforcing the need for further easing or prompting a more cautious approach.

Federal Reserve Chair Jerome Powell has faced mounting pressure from President Trump, who has repeatedly called for lower interest rates to stimulate the economy. Trump recently indicated he may consider replacing Powell before his term ends in May next year, adding a layer of political scrutiny to the central bank’s decisions.

As the US navigates a period of uncertainty marked by government gridlock and uneven economic signals, the Fed’s decision underscores its commitment to supporting employment. While inflation remains a factor, the central bank is clearly prioritizing measures to stabilize the labour market, signaling that accommodative policy may continue in the months ahead.