The Federal Reserve cut interest rates by a quarter percentage point on Wednesday and indicated it would continue lowering borrowing costs through the end of the year, as policymakers responded to signs of weakness in the labor market. The move received broad internal support, including from most of President Donald Trump's appointees to the central bank.

Only Stephen Miran, who was sworn in as Fed chairman on Tuesday and is on leave as head of the White House Council of Economic Advisers, dissented from the half-percentage-point reduction in borrowing costs.

This rate cut, along with projections indicating that two more quarter-percentage-point cuts are anticipated at the remaining two policy meetings this year, suggests that Fed officials have begun to downplay the risk that the administration's trade policies will fuel persistent inflation, and are now more concerned about weakening growth and the possibility of rising unemployment.

The cut, the first such move by the policy-setting Federal Open Market Committee (FOMC) since December, lowered the policy rate to a range of 4.00%-4.25%.

"In the short run, inflation risks are trending higher and employment risks are trending lower, a challenging situation" for monetary policymakers, Fed Chairman Jerome Powell said in a press conference following the two-day meeting. "It's the risks we see to the labor market that are the focus of today's decision."

Powell said he believes the recent pace of job creation has been running below the breakeven level needed to keep the unemployment rate constant, and with companies hiring very little overall, increased layoffs could quickly trigger a rise in unemployment.

"The labor market is weakening, and we don't need it to weaken further," he said.

The latest economic projections released by the Fed show that the median policymaker still expects inflation to end this year at 3%, well above the central bank's 2% target, a projection unchanged from the last set of projections in June. The unemployment projection is also unchanged at 4.5%, and the economic growth projection is slightly higher at 1.6% compared to 1.4%.

Stocks briefly rallied after the decision before turning lower and closing mixed, while the dollar strengthened slightly against a basket of major trading partner currencies. U.S. Treasury yields were little changed, and interest rate futures markets see a greater than 90% probability of another rate cut at the Fed's next meeting in late October. (alg)

Source: Reuters