On Wednesday, the Federal Open Market Committee (FOMC) voted 11-1 to cut the federal funds rate by 25 basis points, pushing the range down to 4.00–4.25%. Although inflation is above target, the committee cut rates as a way to ensure the economy continues to grow.

A primary driver of the Fed's decision was softening in the labor market. The economy added only 22,000 jobs* in August, well below expectations, and previous months’ numbers were revised down significantly. The unemployment rate only ticked up to 4.3%*, however, due to fewer workers seeking jobs. The committee believes the downside risks to employment are large enough to start the rate-cutting cycle.

According to committee members, inflation will not likely reach the 2% target until 2028.

As the risks to labor markets rise, we should expect further cuts in October and December.

Sources: LPL Research, *Clearnomics, Federal Reserve