MNI: Fed Cuts 25BPS, Sees 2 More '25 Cuts; Miran Dissents

The Federal Reserve lowered official borrowing costs by a quarter point Wednesday, the first interest rate cut since December, and indicated two more cuts are expected this year, with newly-appointed governor Stephen Miran dissenting in favor of a larger 50 basis point reduction. 

The FOMC lowered its federal funds rate to a target range of 4-4.25%, citing downside risks to the labor market, and penciled in two additional reductions for 2025 and one more next year in its latest Summary of Economic Projections.

"Downside risks to employment have risen," the Fed said in its post-meeting policy statement. 

"Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated," the statement said. 

The rate cut comes against the backdrop of relentless public pressure from the White House on the Fed to lower interest rates. President Donald Trump is attempting to fire Fed governor Lisa Cook in an unprecedented move that is still being litigated, and also just appointed former top White House economic adviser Miran to the Fed board of governors.  

Miran not only voted in favor of a larger cut but the Fed's dot plot suggests he wanted as much as 150 basis points of cuts this year, compared with a median 50bps for the rest of the FOMC. 

SCATTERED DOTS

The dots showed significant internal divisions beyond Miran's dissent. One non-voting member preferred not to cut at this meeting or for the rest of this year; six thought Wednesday's cut should be the last for the year; two expect one more cut in 2025; nine see two more quarter-point cuts. 

The updated economic projections see core PCE inflation ending the year at 3.1%, unchanged from the June projections, while unemployment is seen averaging 4.5% in the fourth quarter, same as in June. The Fed upgraded its inflation forecast for next year by 0.2 ppt to 2.6% for both core and headline.

Concerns about the strength of employment have grown after two months of weaker-than-expected payrolls growth, extensive downward revisions going back into last year, as well an uptick in the jobless rate. 

At the same time, officials are all too cognizant of an inflation rate that is still hovering around 2.5-3%, and thus remains well above the central bank's target, with little sign of progress over the last 18 months or so. 

This means Fed Chair Jerome Powell is unlikely to commit to a preset course of rate cuts during his post-meeting press conference at 2:30 pm. 

The Fed cut rates by 100 basis points last year but then paused as Trump's tariff and immigration policies increased uncertainty around inflation and growth prospects.