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'There are no risk-free paths': Fed's rate cut is a stab in the dark [1]
['Daily Kos Staff']
Date: 2025-09-17
The Federal Reserve Board on Wednesday cut interest rates for the first time in 2025, saying that while inflation is rising, the weakening labor market merited an adjustment.
"Job gains have slowed, and downside risks to employment have risen," Federal Reserve Chair Jerome Powell said in a news conference. “At the same time, inflation has risen recently and remains somewhat elevated.”
x Powell: "Job gains have slowed and downside risks to employment have risen. At the same time, inflation has risen recently and remains somewhat elevated ... GDP rose at a pace of around 1.5% in the first half of the year, down from 2.5% last year." — Aaron Rupar (@atrupar.com) 2025-09-17T18:35:26.558Z
“There are no risk-free paths now. It’s not incredibly obvious what to do,” Powell said of the Fed’s decision to cut rates—an ominous comment.
The rate cut comes as the job market has stalled, with few jobs having been created in the months after President Donald Trump announced his ill-advised tariffs. In fact, June marked the first month that the economy lost jobs since the COVID-19 pandemic in 2020.
What’s more, while the unemployment rate is still low at 4.3%, layoffs appear to be rising, with the week ending Sept. 6 seeing the highest number of first-time unemployment insurance claims since 2021. And for those out of work, finding a job is getting harder. Earlier this month, the Bureau of Labor Statistics reported that there are more job seekers than job openings for the first time since 2021.
All of that led the Federal Reserve to decide that cutting interest rates to try to fuel business investment was worth it.
Still, Powell also warned of a growing risk of stagflation, which is the simultaneous combination of stalled economic growth, high inflation, and high unemployment.
Economists have been saying Trump’s tariffs could lead to stagflation since the increased cost of goods could cause companies’ profit margins to sink, necessitating layoffs, price increases, or both.
Commerce Secretary Howard Lutnick holds a chart as President Donald Trump announces new tariffs, in the Rose Garden at the White House, on April 2.
"To offset internal costs, you may look at reducing your workforce and curbing wage growth to offset part of the cost of goods increase," EY-Parthenon chief economist Greg Daco told CBS in August.
Stagflation is a nightmare for monetary policymakers. Interest-rate adjustments—which the Federal Reserve Bank uses to steady the economy—can exacerbate one of the dueling issues. Raising interest rates could help fight inflation but could also chill job creation. Lowering interest rates could help with job creation but spike inflation.
Trump, for his part, has been demanding the Federal Reserve cut interest rates for months, even threatening the independence of the bank because Powell and other board members refused to cut rates when Trump asked. As of press time, Trump had yet to comment on the rate cut.
But Democrats were quick to paint the interest-rate adjustment as proof that Trump's economy is in the shitter.
"The Federal Reserve just had to cut rates because Donald Trump is sabotaging our economy. Costs are rising and the job market is shrinking. But Donald Trump is too busy giving tax breaks to his billionaire friends to care about inflation," Rep. Brendan Boyle of Pennsylvania, the top Democrat on the House Budget Committee, said in a post on X.
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