US Fed announces rate cut for 1st time this year, signals 2 more ahead

The US Federal Reserve on Wednesday lowered its benchmark interest rate by a quarter percentage point in the first reduction since December, and signaled two more cuts this year, amid mounting pressure from President Donald Trump to bring it down to help boost the economy.

Following the two-day Federal Open Market Committee meeting, the central bank decided to lower the key rate to the 4-4.25 percent range. The cut put the gap between the key rates of South Korea and the United States at up to 1.75 percentage points.

In a statement on the decision, the Fed noted that the unemployment rate has "edged up" but remains low, and that inflation has "moved up" and remains somewhat elevated.

"Uncertainty about the economic outlook remains elevated," it said.

"The committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen," it added, referring to the Fed's two goals of achieving maximum employment and inflation at the rate of 2 percent over the longer run.

During a press conference, Fed Chair Jerome Powell depicted a "challenging" situation facing the US economy.

"In the near term, risks to inflation are tilted to the upside and risks to employment to the downside -- a challenging situation," he said. "When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate."

According to FOMC members' new median economic projection, the federal funds rate is expected to be cut to 3.6 percent at the end of the year, down from the June projection of 3.9 percent -- a forecast that signals two more rate cuts, possibly in the remaining two FOMC meetings, one in October and the other in December.

The projection also indicates that the rate is expected to be reduced to 3.4 percent at the end of next year, 0.2 percentage points lower than the previous projection.

US gross domestic product is expected to grow by 1.6 percent this year, up from 1.4 percent projected in June, according to it.

Personal Consumption Expenditures inflation is projected to reach 3 percent at the end of the year, the same as the June forecast. PCE is a measure of household consumer spending on goods and services in the US.

During the press conference, Powell commented on the impact of Trump's tariff policy, noting that its effect will continue to build going forward.

"The increase in goods prices accounts for most of the increase in inflation, or perhaps all of the increase in inflation over the course of this year," he said. "Those are not very large effects at this point, and we do expect them to continue to build over the course of the rest of the year and into the next year."

This week's rate-setting meeting again exposed dissent following the July meeting, as new Governor Stephen Miran, a top economic advisor to Trump, voted against the 25-basis-point cut, preferring to lower the rate by 50 basis points. He joined the Fed on Tuesday, renewing questions over the Fed's independence.

Asked about Miran's entry into the Fed, Powell reiterated that the central bank is "strongly committed to maintaining our independence," while dismissing claims of any political influence in the bank's decision-making process.

"Look. It's deeply in our culture to do our work based on the incoming data and never consider anything else ... Everybody who's at the Fed feels strongly about that," he said.

He went on to underscore that a decision-making process based on data is in the Fed's "DNA."

Trump has raised pressure on Fed Chair Jerome Powell to lower the rate amid lingering concerns that Trump's tariff policy could lead to higher prices. On Monday, the president renewed calls for a "bigger" reduction.

"'Too Late' MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!" Trump wrote on Truth Social. (Yonhap)