The US Federal Reserve cut interest rates by 25 basis points to 4.00–4.25% in its September 2025 meeting, the first rate cut since December 2024.
The US Federal Reserve on Wednesday lowered its benchmark federal funds rate by 25 basis points to a range of 4.00–4.25 percent, in line with market expectations. This marks the first rate cut of President Donald Trump’s second term and the first reduction since December 2024, following five straight meetings of holding rates steady.
More Rate Cuts Likely
Projections show two more quarter-point cuts this year, 50 basis points in total alongside one cut in 2026 and another in 2027. While most officials foresee gradual easing, one projected as much as 125 bps of rate reductions by December.
Split Vote: Call for Deeper Cut Rejected
The policy decision passed 11–1, with newly appointed Governor Stephen Miran dissenting in favour of a sharper half-point cut. Governors Michelle Bowman and Christopher Waller, who had earlier pushed for easing, backed the quarter-point move, signalling a gradualist approach.
Growth Outlook Improved
The Fed upgraded its growth forecasts, projecting US GDP growth at 1.6 percent in 2025 and 1.8 percent in 2026, compared with earlier estimates of 1.4 and 1.6 percent.
Labour Market Weakness in Focus
The Fed acknowledged that “job gains have slowed” and flagged rising downside risks to employment. Chair Jerome Powell reinforced this concern, saying the labour market is softening and adding: “We don’t need it to soften anymore (and) don’t want it to.”
Inflation Still Elevated, Tariffs Viewed as One-Off Shock
On inflation, the Fed noted it “has moved up and remains somewhat elevated.” Powell said risks of persistence have “probably become a little less” since April. He highlighted tariffs’ effects as more of a “one-time price increase” rather than a sustained driver of inflation, adding that so far, consumers have felt only a limited impact.
Powell Stresses Independence Amid Political Pressure
Asked about speculation of a “third mandate” for moderate long-term rates, Powell dismissed the idea, stressing: “It’s deeply in our culture to do our work based on the incoming data and never consider anything else.” He declined to comment directly on pressure from the Trump administration but reiterated the Fed’s commitment to independence.
Despite closing lower on Wednesday, both the S&P 500 and the Nasdaq remain on track for weekly gains, up 0.2% and 0.5% so far, respectively. That positions the S&P 500 for its sixth winning week in seven, while the Nasdaq is eyeing a third straight week of gains.
Meanwhile, the Dow Jones Industrial Average rose on Wednesday, lifting its week-to-date advance to 0.4%. If the momentum holds, it would mark the blue-chip index’s second consecutive positive week.