Washington (Reuters) – The American Federal Reserve (FED), as expected, reduced its guiding rates on a quarter of a percentage point on Wednesday and has suggested other drops by the end 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.

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.

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. The rate of rate of federal funds is now in the range of 4.00% to 4.25%.

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 parts of its double mandate and estimates that the risks down to employment have increased,” wrote the FOMC, the Fed monetary policy committee, in its monetary policy statement, published at the end of two days of meeting.

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

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%.

At Wall Street, the actions increased slightly after the Fed decision, while the dollar fell compared to a basket of reference currencies. The yields of treasury bills have varied little and the market contracts on rates estimated more than 90% the probability of a new drop in rates at the next Fed meeting, scheduled for late October.

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 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 perspective.

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.

In the latest “Dot Plot” of the Fed, a rate projection of 2.875% for the end of the year 2025 is distinguished by the fact that it is three -quarters of percentage points to the next lowest projection.

Donald Trump demanded strong rate drops.

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.

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

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