() The Federal Reserve cut interest rates on Wednesday, moving to bolster a weakening job market even as inflation remains elevated.

The quarter-point reduction the first in nine months was widely expected amid recent jobs data pointing to a slowdown.

“In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Fed Chair Jerome Powell said at a press conference on Wednesday.

Wednesday’s decision was not unanimous, with Fed governor Stephen Miran preferring a larger half-point cut. Miran, President Donald Trump’s top White House economist, officially joined the Federal Reserve board of governors on Tuesday. However, two other Trump appointees did not dissent.

The quarter-point cut is unlikely to satisfy Trump, who has been calling for Powell to lower rates something policymakers have been reluctant to do until the inflationary effect of the president’s tariffs came into clearer focus.

Officials signaled they expect to reduce their key rate twice more this year, but Powell cautioned that the full implications of Trump’s tariffs are still uncertain.

“I feel like our policy has been doing the right thing so far this year,” Powell told reporters. “I think we were right to wait and see how tariffs, and inflation and the labor market evolved.”

Cooling job market meets stubborn inflation

The Fed has a dual mandate: Maximum employment and stable prices. Right now, those goals are pulling in opposite directions. Inflation is accelerating, while the job market is cooling.

That’s left policymakers in a bind cut rates to support jobs, or keep them higher for longer to tame inflation.

Wednesday’s rate cut suggests the Fed is leaning toward protecting the job market, even if it means tolerating inflation slightly above its 2% target. In other words, the Fed isn’t declaring victory over inflation it’s reacting to a weakening job market.

“Higher tariffs have begun to push up prices in some categories of goods, but their overall effects on economic activity and inflation remain to be seen,” Powell said.

The move was modest, just a quarter point, underscoring the Fed’s caution.

“For most Americans, the day-to-day impact may feel minimal,” Bankrate analyst Sarah Foster said in a statement.

The cut brings the central bank’s benchmark rate down to a range of 4% to 4.25% roughly where it stood in late 2022, which was already the highest level since 2007.

At the same time, the small rate cut suggests officials didn’t see the need for more dramatic action, a somewhat reassuring sign.

The hope now is that the inflationary impact of President Trump’s tariffs proves temporary. If not, easing up on rates risks leaving inflation elevated for longer, raising the possibility of stagflation if job growth continues to weaken.

Powell called a short-lived, tariff-driven price bump a “reasonable base case” but warned that the inflationary effects may be more persistent.

All that said, key measures aren’t at crisis levels. Inflation has picked up since April, but the 2.9% rate in August was far below the 9.1% peak in June 2022. And while unemployment has risen to 4.3% the highest since 2021 it remains low by historical standards.

Why the Fed’s rate cut may not lower mortgage rates

Elevated mortgage rates have kept many potential homebuyers on the sidelines, but Wednesday’s rate cut isn’t guaranteed to bring relief.

Part of the reason is that markets tend to move in anticipation, rather than reaction. Mortgage rates had already fallen in recent weeks on expectations of a cut, with the average 30-year fixed dropping from 6.75% in early July to 6.35% last week, according to Freddie Mac.

That suggests much of the Fed’s action may already be priced into the mortgage rates buyers are seeing today.

More important is what happens next. Mortgage rates tend to track the 10-year Treasury yield more closely than the Fed’s benchmark, and shifts there would have a more direct impact. A run of weak economic data has pulled those yields lower in recent weeks.

But if recent history is any guide, there’s a chance mortgage rates could rise after Wednesday’s cut. That’s exactly what happened last year: rates plunged to 6.09% ahead of September’s cut only to reverse course and climb to 6.79% by early November.

And even if they do head lower this time, it’s unclear how far they’ll need to drop to draw buyers back into the market. Some, like “Shark Tank’s” Kevin O’Leary, say the magic number is 5.5%.

For perspective: at this time four years ago, the average 30-year fixed mortgage rate was just 2.86%.