In a highly anticipated move, the Federal Reserve is poised to slash its benchmark federal funds rate on Wednesday, marking the first reduction since December 2024, as Fox Business reports.

The decision to cut rates by 25 basis points to a range of 4% to 4.25% comes as labor market data weakens, inflation creeps upward, and the Trump administration exerts pressure for lower borrowing costs.

This expected adjustment follows months of economic signals that have pushed the Federal Open Market Committee (FOMC) to act in alignment with its dual mandate of fostering maximum employment and maintaining price stability near a 2% inflation target.

First rate cute in months

Back in July, the Fed held rates steady despite dissent from two of its governors, Michelle Bowman and Christopher Waller, who advocated for a reduction.

That meeting marked a rare moment, as it was the first time since 1993 that two policymakers pushed for cuts in the same session.

Since then, economic conditions have shifted, with job growth slowing dramatically over the summer months.

Labor market weakness drives policy shift

In June, revised data revealed a loss of 13,000 jobs, while July showed an upward revision to 79,000 jobs added.

By August, only 22,000 jobs were created, a sharp decline that has heightened concerns about employment trends.

These figures have tipped the balance for Fed policymakers, who, according to Chair Jerome Powell, prioritize whichever goal -- employment or inflation -- is furthest from its target.

Inflation climbs despite Fed's target

Meanwhile, inflation has been trending in the wrong direction, moving away from the Fed’s 2% goal.

In April, the Personal Consumption Expenditures (PCE) index showed headline inflation at 2.2% year-over-year, with core PCE at 2.6%, but by July, those numbers rose to 2.6% and 2.9%, respectively.

Consumer Price Index (CPI) data for August further underscored the challenge, climbing to 2.9% year-over-year, with core CPI at 3.1%.

Tariffs complicate inflation outlook

Adding to the complexity, Fed officials have debated the impact of tariffs imposed under the Trump administration, questioning whether they cause lasting inflation or merely a temporary price spike.

Earlier this summer, Powell highlighted the significant effect of these tariffs during a panel discussion, noting their role in delaying rate cuts.

He explained, "I think that's right. In effect, we went on hold when we saw the size of the tariffs and where, essentially, all inflation forecasts for the United States went up materially as a consequence of the tariffs."