Washington (Reuters) – The Federal US Federal Reserve (Fed), as expected, reduced its guiding rates on a quarter of a percentage point on Wednesday and indicated that it gradually drops its loan costs for the rest of the year, in a context of fears of a weakening of the labor market.

This decision was approved by most Fed members appointed by President Donald Trump. Only his economic advisor,Stephen Miran,who became one of the governors of the Fed on Tuesday after his approval by the Senate,spoke in favor of a reduction of half a percentage.

At the press conference which followed the Fed’s decision, its president, Jerome Powell, said that the drop in the rate of rate of federal funds, now in a range of 4.00%-4.25%, responded to risk management, adding that it did not feel the need to act quickly.

“In the short term, the risks of inflation are on the rise and those for downward employment, which represents a challenging situation” for monetary policy leaders, continued Jerome Powell.

“Thes are really the risks we see on the labor market that has been at the center of today’s decision,” he insisted.

“The demand for labor has fallen and the recent pace of job creations seems to be lower than the necessary point to maintain the constant unemployment rate,” he added, noting that “the marked slowdown in the supply and demand for employees is unusual”.

The drop in guiding rates on Wednesday and projections for the last two meetings of the year show that Fed officials have started to minimize the risk that the commercial policy defended by Donald Trump will feed persistent inflation. Two additional rate reductions of 25 base points each are expected this year, according to the projections of the Fed.

According to Jerome Powell,the repercussions of customs duties on the rise in prices for consumers has so far been low,this cost having been largely absorbed by companies located in the middle of the supply chains.

“It is obvious that there is a certain repercussion,” he said, while adding: the companies involved in trade “will tell you that they intend to pass (customs duties) in the long term, but they do not currently,” he developed.

“As April, for me, the risks of higher and more persistent inflation has probably diminished, in part as the labor market has relaxed and the growth of GDP has slowed down,” also noted Jerome Powell.

Officials of the American central bank are now more concerned with the weakening of growth and the probability of a rise in the unemployment rate. before the decision on Wednesday, the last drop in Fed rates dates back to December 2024.

A very large majority of economists interviewed by reuters, or 105 out of 107, had estimated last week that the American central bank would start to reduce its guiding rates on Wednesday, with a drop of 25 basic points.

“the Committee is attentive to the risks that weigh on both aspects of its double mandate and estimates that the risks down to employment have increased,” wrote the FOMC, the Fed Monetary Policy Committee, in its press release published at the end of two days of meeting.

“Job creations have slowed down and the unemployment rate has increased slightly” adds the FOMC.

“Meeting after meeting”

The median of new economic projections shows that Fed officials are still counting on 3% inflation at the end of the year, well above the 2% target of the central bank. This projection is unchanged from June forecasts.

Unemployment projection is also unchanged at 4.5% and that for slightly higher economic growth at 1.6% against 1.4% previously.

At Wall Street,the actions increased slightly immediately after the Fed’s decision. The Dow Jones ended up on a 0.57%gain, while the S&P 500 fell 0.09%and the NASDAQ by 0.32%.

On the foreign exchange market, the dollar took 0.32% against a basket of reference currencies, after an initial decline following the Fed decision.

The yield of ten -year treasure bills advanced by 4.8 basic points, at 4.0737%, and that of two years of 4.1 points, to 3.55%. The yields fell in session before reverse the trend following the statements of Jerome Powell.

The president of the Fed said that the institution was in a situation of “meeting after meeting” concerning the prospects on interest rates.

Attenuation of the risk of stagflation

Compared to the risks of stagflation underlined in the June projections where the Fed had opted for the status quo to avoid an inflation resurgence, the new projections show however that its managers begin to think that they can avoid an increase in unemployment by accelerating the rate of rate reductions, while inflation will slow down slowly next year.

Fed officials have gradually joined the idea that Donald Trump’s customs duties would have a temporary impact on inflation, and the last forecasts reflect this outlook.

The adoption of a more regular rate of reduction was supported by the governor of the Fed Christopher Waller, and the vice-president in charge of supervision, Michelle Bowman, appointed by Donald Trump, who disagreed with the decision made at the end of July to maintain unchanged rates.

Stephen Miran opposed this Wednesday’s decision and seems to have planned the highest rate reductions in the projections published after his arrival at the Governors’ Council on Tuesday.

“Even if the market considers the two additional drops (rate) in 2025 as accommodating, I generally think that the message is more aggressive. Waller and Bowman did not vote for a drop in 50 base points as the market had anticipated, the target of 2026 did not decrease in relation to market expectations and the Fed continues to recognize persistent inflation”, commented BRIJ KHURANA, at Wellington Management.

Among those who voted in favor of this Wednesday’s decision is Lisa Cook,the governor of the Fed,who attended the meeting despite Donald Trump’s attempts to dismiss her from his post.

Prayed to comment on the situation of Lisa Cook, accused by the Trump administration of alleged irregularities in statements for real estate loans, Jerome Powell refused to decide on this file.

“I consider that this is a judicial case on which it would be inappropriate for me to comment,” he said.

An American federal judge temporarily blocked Donald Trump’s decision to dismiss Lisa Cook on Tuesday.

Quantitative tightening

Regarding the FED’s assessment, Jerome Powell stressed that the central bank was getting closer to the point where it must put an end to the quantitative tightening, a practice of reducing liquidity in the financial system, but that it had not yet reached this point.

“We get closer” to the point where the reduction of Fed’s assets in liquidity and bonds may stop, he explained, noting that the reserves of the financial system remain abundant. However, he added that the current level of reduction is relatively limited and has no broader economic impact.

(Howard Schneider, written by Claude Chendjou, edited by Camille Raynaud)