The cut was supported by all but one of the 12 voting FOMC members. Stephen Miran—confirmed by the Senate to the governors’ board by a 48-47 vote on Monday—favored a 50 basis point cut. Miran is on an unpaid leave of absence from his job as chair of the White House Council of Economic Advisers but has said he would leave the position if renominated to the Fed for a full term after his term expires in January.
The cut is an unsurprising move for an entity in a difficult position. Congress, in the 1913 law establishing the Federal Reserve, stipulated that the central bank was to guide monetary policy “as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” In practice, this has meant navigating a careful balance between preventing high inflation and high unemployment rates. But, as Powell said in a Wednesday press conference, “In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation.”
Per the latest Bureau of Labor Statistics (BLS) data, annual inflation measured at 2.9 percent in August, a 0.2 percent increase from the month before, and notably higher than the Fed’s set inflation rate target of 2 percent. Meanwhile, the BLS August jobs report showed unemployment ticking up for the second consecutive month to 4.3 percent, a 0.1 percentage increase from July. Both are concerning, but Powell explained that inflation was a lower priority at this point than unemployment: “With downside risks to employment having increased, the balance of risks has shifted.”
Though inflation had been a bigger concern for several years, underlying economic factors have shifted. “What’s changed lately is that the labor market has shown somewhat more concerning signs of a weakening, and that’s caused them to shift the balance of their attention to that,” David Wilcox, a senior fellow at the Peterson Institute for International Economics (PIIE) and director of U.S. economic research at Bloomberg Economics, explained.
Others agreed. “The unemployment rate has been drifting up over the past couple of years,” Jed Kolko, a PIIE senior fellow and former Commerce Department under secretary for economic affairs, told TMD. “It is still low by historical standards, but not as low as it has been, and that’s a sign that labor demand is weakening.” Unemployment may only be up 0.1 percent from July, but 4.3 percent is the highest since October 2021—or since September 2017 if you exclude months impacted by the COVID-19 pandemic. The July 2025 data from the BLS’ Job Openings and Labor Turnover Survey (JOLTS)—the latest available monthly report that tracks job vacancies, hiring, quits, and layoffs—showed there were more unemployed workers than job openings, putting the unemployed-per-opening ratio under 1.0 for the first time since the pandemic.
But the unemployment rate is not the only red flag in the labor market, as TMD reported earlier this month:
BLS data for August showed that the U.S. economy added 22,000 non-farm jobs last month, a steep decline from the 79,000 jobs added in July. In August 2024, that number stood at 124,000. Data for June was also revised down by 27,000 jobs from 14,000, meaning that the economy actually shed 13,000 jobs for that month. It was the worst monthly showing since 2020.
Powell on Wednesday acknowledged that the labor market was “slowing,” which he said “likely reflects a decline in the growth of the labor force due to lower immigration and lower labor force participation.” As Pew Research highlighted in a report last month, immigrants comprised only 19 percent of the total U.S. labor force, a 1 percent decrease from January.
Still, while immigration to the U.S. is in decline, it’s hard to pinpoint its direct effect on the labor market. There’s “a lot of uncertainty over how much immigration has slowed, and that means a lot of uncertainty about how fast the workforce is growing, and therefore harder to interpret job creation numbers,” Kolko said.
Young Americans in particular are struggling, with people between the ages of 16 and 24 ( excluding military service members) at a 10.5 percent unemployment rate last month—the highest rate since April 2021, and a far cry from the 6.6 percent rate recorded in April 2023. And, if anything, the headline figures likely understate the true extent of labor market weakness. “As people move out of the labor force, the labor force participation rate goes down and the unemployment rate artificially also goes down or stays lower than what it otherwise would be,” Vance Ginn, the founder of Ginn Economic Consulting and former chief economist at the White House’s Office of Management and Budget, told TMD.
The August BLS report found that there were 6.4 million people not in the labor force who currently want a job but who were not counted as “unemployed” because “they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.” That’s up by 722,000 since the start of the year.
Still, Ginn said that the Federal Reserve may be more effective at lowering inflation than achieving maximum employment. “From my perspective, the Fed really only has one thing that it controls, and that’s inflation. It can’t do much with the labor market,” he explained. Lowering rates doesn’t guarantee job creation. “That’s a real variable versus a nominal variable,” Ginn argued. While lower rates could boost investment and job creation, increased money supply “also influences a lot of other markets” and typically drives up prices without meaningfully affecting unemployment.
With unemployment as a focus, Powell will likely continue to slowly cut rates from here. “It’s not just that rates are a quarter-point lower now than they were earlier today,” Peter Coy, an economic commentator and former columnist for the New York Times, told TMD. “It’s that people see a downward trajectory to them and possibly to [2026],” and are planning accordingly.
At a press conference Wednesday, Powell was asked if the 0.25 percent rate cut was sufficient. “I mean, our market works through expectations, right?” Powell replied. “So, I think our policy path really does matter.”
