The Federal Reserve just delivered what markets have been craving. On Wednesday, the central bank trimmed its benchmark rate by 0.25 percentage points to 4%-4.25%, marking the first reduction this year as policymakers prioritized employment concerns over persistent inflation worries. Fed Chair Jerome Powell emphasized the shift in focus, cautioning during his press conference that “the labor market is really cooling off.”

• Job creation has decelerated dramatically, with only 598K positions added through August — less than half of the 1.4M added during the same period last year, while unemployment climbed to 4.3%.
• The Fed’s rate-setting committee voted 11-1 for the quarter-point cut, with newly appointed governor Stephen Miran dissenting in favor of a larger half-point reduction.

Political theater aside: Fed officials penciled in two additional quarter-point cuts for 2025, though seven of 12 committee members prefer holding rates steady for the remainder of the year. Meanwhile, inflation has crept from 2.3% to 2.9% since Trump announced sweeping tariffs in April, complicating the Fed’s balancing act. The central bank now faces the unusual challenge of addressing labor market softness while stock markets hover near record highs — a dynamic that tests even the most seasoned policymakers.