Only new governor Stephen Miran, who joined the Fed on Tuesday and is on leave as the head of the White House's Council of Economic Advisers, dissented in favour of a half-percentage-point cut.
The rate cut, along with projections showing two more quarter-percentage-point reductions are anticipated at the remaining two policy meetings this year, indicate Fed officials have begun to downplay the risk that the administration's voluble trade policies will stoke persistent inflation, and are now more concerned about weakening growth and the likelihood of rising unemployment.
The cut, the first move by the policy-setting Federal Open Market Committee since December, moves the policy rate to the 4.00 per cent-4.25 per cent range.
"The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen," the Fed said in its policy statement.
"Job gains have slowed, and the unemployment rate has edged up."
Fed chair Jerome Powell will hold a press conference later in the day to elaborate on the latest statement and economic outlook.
New economic projections showed policymakers at the median still see inflation ending this year at three per cent, well above the central bank's two per cent target, a projection unchanged from the Fed's last set of forecasts published in June.
The projection for unemployment was also unchanged at 4.5 per cent and economic growth slightly higher at 1.6 per cent versus 1.4 per cent.
Compared to the stagflationary risks contained in the last set of projections, with the Fed slowing rate cuts to head off inflation, the new projections show an emerging sense among officials that they can head off any rise in unemployment with a faster pace of rate cuts, while inflation eases slowly next year.
Fed officials have gradually warmed to the idea that US President Donald Trump's tariffs would have only a temporary effect on inflation, and the latest forecasts are consistent with that view.
The move to a more consistent pace of cuts was backed by Fed governor Christopher Waller and Vice Chair of Supervision Michelle Bowman, Trump appointees who dissented over the policy decision in late July to hold rates steady.
Miran dissented on the latest cut and appears to have pencilled in the steepest rate cuts in projections issued after he joined the Board of Governors on Tuesday.
In the newest "dot plot," one rate projection of 2.875 per cent for the end of 2025 stands out as being three-quarters of a percentage point below the next lowest one.
Trump has urged steep rate cuts.
Also voting in favour of the decision was Fed governor Lisa Cook, who attended the meeting despite Trump's effort to fire her and after two courts supported her challenge of his attempted dismissal.
