Powell Opens Rate-Cut Cycle, Citing Softening Labour Market

Traders on the floor of the NYSE notice on Wednesday as Federal Reserve Chair Jerome Powell announced a 0.25% cut in the Fed’s key interest rate. It was the Fed’s first rate cut since last December, lowering the federal funds rate to 4.00-4.25%. The statement said policymakers expect to cut rates further in coming months, and Powell made clear at his news conference that the slowing jobs market was driving the decision. In plain language: the Fed sees evidence of weakening in hiring and employment – including rising unemployment among minorities and younger workers – and wants to ease borrowing costs to support those jobs.

Powell stressed that the central bank must balance these labour worries against inflation. “There are no risk-free paths,” he said, noting that the Fed must “keep our eye on inflation … [but] we cannot ignore … maximum employment”. He pointed out that current hiring is barely keeping up with new entrants into the workforce, so even small increases in layoffs could quickly raise overall unemployment. In other words, the Fed is now “weighing the labour market more,” as one analyst put it, even though inflation remains above the 2% target. The Fed’s updated forecasts (the “dot plot”) show officials projecting two more quarter-point cuts in 2025, and Powell said decisions will be “meeting by meeting” as they monitor how the economy evolves.

Markets reacted cautiously to the Fed’s rate cut. The Dow rose 0.6%, while the S&P 500 dipped 0.1% and the Nasdaq slipped 0.3%, as investors had largely priced in the move. Bond markets moved more sharply, with the 10-year US Treasury yield edging up to 4.07%, signalling slightly higher borrowing costs. The dollar firmed after an initial wobble, while gold briefly hit a record above $3,700 before easing back. Overall, the Fed’s signal of easier policy ahead lifted bonds and steadied the dollar, but Powell’s cautious tone left markets split on how quickly further cuts might follow.