The US Federal Reserve (Fed) lowered its benchmark interest rate for the third time this year on Wednesday evening. The rate was cut by 0,25 percentage points and now stands in a range of 3,5 to 3,75 percent, the Fed said in Washington. A large majority of economists had expected a rate cut.

In its explanation, the Fed pointed to recent weakness in the labor market. Risks to employment had increased in recent months, it said.

Focus on the Labor Market

Following the decision, Fed Chair Jerome Powell said the Fed had now done enough to shield the economy from threats to employment while keeping rates high enough to continue dampening price pressures.

«This further normalization of our monetary policy should help stabilize the labor market while allowing inflation to resume its downward trend toward 2 percent once the effects of tariffs have been overcome,» he said.

Asked whether it was a foregone conclusion that the Fed’s next move would be a rate cut, Powell was cautious. However, he added that he did not consider a rate hike «the baseline scenario.»

Third Consecutive Cut

The first rate cut this year came in September, followed by a second in October. Yesterday’s decision saw three dissenting votes. Austan Goolsbee of Chicago and Jeff Schmid of Kansas City favored keeping the rate unchanged, while Governor Stephen Miran, appointed by US President Donald Trump in September, voted for a larger 50-basis-point cut.

The Fed Board had to rely on estimates for key indicators due to the government shutdown in October and November, which resulted in missing official data on the labor market and inflation.

Lower Inflation Forecast

For 2026, the Fed now expects economic growth of 2,3 percent (previously 1,8 percent) and inflation to fall to 2,4 percent. For 2025, the inflation forecast was lowered from 3,0 to 2,9 percent. In September, inflation had stood at 3,0 percent.

Powell’s term ends in May. President Trump has announced he will nominate a successor in early 2026. Kevin Hassett, Trump’s economic adviser and chair of the National Economic Council, is considered a leading candidate.