US Fed Meeting: From rate cut, GDP upgrade to job risks—Key takeaways from first cut since December

The Federal Reserve cut its key interest rate by a quarter-point on Wednesday and projected two more cuts this year, as concerns about the nation’s labor market outweigh lingering inflation pressures.

The move marks the Fed’s first cut since December, lowering its short-term rate to about 4.1 per cent from 4.3 per cent. Chair Jerome Powell and fellow policymakers had held rates steady across five consecutive meetings while assessing the impact of tariffs, tighter immigration enforcement, and other US President Donald Trump’s administration policies.

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Here are key takeaways from Fed’s big rate cut announcement:

Shift in focus from inflation to jobs

In recent months, inflation has remained modestly above the Fed’s 2 per cent target, but employment conditions have deteriorated. Hiring has nearly stalled and unemployment has crept up, forcing policymakers to pivot.

“It’s really the risks that we’re seeing to the labor market that were the focus of today’s decision,” Powell said at a press conference following the Fed’s two-day meeting. Lower borrowing costs are expected to provide some relief to households and businesses through cheaper mortgages, auto loans, and business credit.

Rate decision and split vote

Rate move: Policy rate cut by 25 bps to 4.00–4.25 per cent.

Vote split: The decision passed 11–1, with newly appointed Governor Stephen Miran dissenting in favor of a deeper half-point cut.

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Labour market concerns deepen

The Fed acknowledged that “job gains have slowed” and “downside risks to employment have risen.” Powell reinforced this, saying the labour market is softening and “we don’t need it to soften anymore (and) don’t want it to.”

Inflation outlook remains cautious

Inflation “has moved up and remains somewhat elevated,” though Powell suggested risks of persistent price growth have “probably become a little less” since April. Tariff-related costs, he argued, resemble a “one-time price increase” rather than a lasting trend.

Economic forecasts and future path

Policymakers signaled two further quarter-point cuts this year — 50 bps in total. They also penciled in one cut in 2026 and another in 2027, though one official projected as much as 125 bps of easing by December.

Growth forecasts were revised upward: GDP is now expected to grow 1.6 per cent in 2025 and 1.8 per cent in 2026, compared with earlier projections of 1.4 and 1.6 per cent.

Fed independence under spotlight

Powell rejected calls for a “third mandate” on moderate long-term rates, stressing the Fed’s dual mandate remains maximum employment and price stability.

“It’s deeply in our culture to do our work based on the incoming data and never consider anything else,” Powell said, brushing aside suggestions of political pressure. On succession, he added there was “nothing new” to share about his plans post-May 2026.

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Market response muted

Wall Street’s initial reaction was subdued. The Dow Jones Industrial Average rose 0.5 per cent (about 260 points), the S&P 500 was flat, and the Nasdaq dipped 0.2 per cent. Treasury yields edged higher, with the 10-year at 4.05 per cent and the 2-year at 3.52 per cent. The dollar firmed slightly.

How Indian markets reacted

Indian equity benchmarks opened higher on Tuesday ahead of the Fed announcement. At the opening bell, the BSE Sensex rose 109 points, or 0.13 per cent, to 81,895, while the NSE Nifty50 added 24 points, or 0.10 per cent, to 25,092.