Fed delivers final rate cut of the year as labour market cools

The US Federal Reserve closed out the year with a quarter-point rate cut, lowering its benchmark range to 3.50–3.75 percent on Wednesday as signs of a cooling labour market continued to pile up.

“Job gains have slowed this year, and the unemployment rate has edged up through September… Inflation has moved up since earlier in the year and remains somewhat elevated,” the Fed said in its statement.

Markets saw the move coming: CME FedWatch put the probability of a cut at 89 percent. But the decision landed amid an unusual data drought. The 43-day government shutdown left major agencies unable to collect statistics the Fed normally relies on, including import prices, producer prices and state-level employment figures. The Bureau of Labor Statistics has already confirmed it cannot release October numbers.

That left policymakers leaning on September’s top-line data, unemployment at 4.4 percent and core inflation at 2.8 percent, to justify a final trim.

“The labour market has continued to cool gradually… a touch more gradually than we thought,” Fed Chair Jerome Powell said.

New figures on Wednesday showed labour costs rising 0.8 percent in the third quarter, slightly below expectations.

Analysts warn that the Fed’s challenge next year may be navigating a “jobless expansion,” where GDP rises but hiring barely does.

“This leaves the economy vulnerable to shocks because the labour market is the main firewall against a recession,” said Ryan Sweet of Oxford Economics.

The central bank is still trying to stay above the political fray, but the pressure is unmistakable. President Donald Trump has hammered Powell for months to cut rates harder and faster. The first cut of Trump’s second term came only in September.

The White House has also placed loyalist Stephen Miran on the Fed board; he has now dissented at both meetings he’s attended, pushing for half-point cuts instead of quarter-point moves. On Wednesday, he did it again, while governors Austan Goolsbee and Jeffrey Schmid voted to hold rates steady.

“Still-elevated inflation and a backlog of economic data complicate the picture… with President Trump’s aggressive push for lower short-term rates potentially complicating the objective of bringing down longer-term borrowing costs,” said Daniel Hornung of Stanford’s Institute for Economic Policy Research.

Trump has already said that anyone he considers for Fed chair after Powell’s term ends in May 2026 will need to support immediate rate cuts.

Adding to the tension: a looming Supreme Court decision over whether Trump can fire Fed Governor Lisa Cook, who has been accused of mortgage fraud. When asked about the case, Powell kept it brief:

“We are not legal commentators.”