Fed Cuts Benchmark Interest Rate, Signals More Easing Ahead

WASHINGTON, Sept. 17, 2025 - The Federal Reserve lowered its target federal funds rate by 25 basis points to a range of 4.00%-4.25%, marking its first cut since December and indicating two additional reductions are likely before year’s end.

Amid a cooling labor market and still-elevated inflation, the Fed opted for a quarter-point cut and projected further easing to bolster employment without stoking price pressures.

Policy Shift to Address Weaker Job Growth

The Fed’s Federal Open Market Committee (FOMC) noted that while overall economic activity moderated and inflation remains above its 2% goal, downside risks to employment have risen. In response, policymakers trimmed the policy rate by a quarter point and signaled readiness to adjust further based on incoming data.

Key Details

  • Rate Decision: Federal funds target reduced to 4.00%-4.25% (down from 4.25%-4.50%)
  • Projections: FOMC “dot plot” shows a majority expecting two more 25 bp cuts in 2025
  • Dissent: Governor Stephen Miran voted against the cut, preferring a 50 bp reduction
  • Mandate Focus: Committee emphasized balancing its dual mandate amid slower job gains and persistent inflation

Market Reaction and Outlook

Stocks initially rallied but closed mixed, while Treasury yields dipped slightly. The dollar strengthened modestly, and futures markets assign over a 90% probability of another cut at the October meeting. Officials reaffirmed their commitment to continue reducing the Fed’s securities holdings even as they navigate evolving economic risks.

Political and Economic Context

The decision comes amid heightened scrutiny of the Fed’s independence, with President Donald Trump pressing for deeper cuts and recently appointing Stephen Miran to the Board. Despite political pressures, most governors resisted calls for larger rate swings, underscoring the Fed’s intent to act based on data rather than external demands.

Next Steps

Investors and businesses will watch upcoming labor and inflation reports for signals on the timing and size of future rate adjustments. The Fed stands prepared to alter its stance if risks to maximum employment or price stability intensify.