Fed Cuts Rates by 25 Basis Points, Signals Further Easing

Lead: In Washington on Wednesday, the Federal Open Market Committee trimmed its benchmark federal funds rate by 0.25 percentage point to 4.00 - 4.25 percent, citing a cooling labor market and moderating growth while still grappling with elevated inflation.

Nut Graf: This marks the Fed’s first rate cut since December 2024 and reflects policymakers’ shifting focus toward supporting a slowing job market amid persistent price pressures. Officials indicated two additional quarter-point reductions are likely before year-end, underscoring growing recession risks.

Key Takeaways

Rate cut to 4.00 - 4.25 percent, down from 4.25 - 4.50 percent.
Fed Chair Jerome Powell framed the move as “risk-management,” prioritizing downside risks to employment.
New Governor Stephen Miran dissented, favoring a 50 basis-point cut; all other members supported the 25 bp action.
Dot-plot forecasts foresee two more cuts in October and December, shifting emphasis from inflation control to growth support.
Markets rallied modestly: equities ticked up, the dollar eased, and traders price in over 90 percent odds of an October cut.

Why the Cut?

The labor market has shown signs of strain, with hiring slowing and unemployment edging higher, while inflation remains above the Fed’s 2 percent target. By lowering borrowing costs, the Fed aims to bolster spending and investment to stave off a sharper downturn.

Policymakers’ Views

Jerome Powell (Chair): Characterized the cut as prudent risk management given “cooling off” in labor demand.
Stephen Miran (Governor): Preferred a larger, 50 bp reduction, arguing more aggressive action was warranted.
Other Governors: Acknowledged elevated inflation but agreed downside risks to employment had intensified, supporting a measured quarter-point cut.

Market Reaction and Outlook

Treasury yields dipped modestly, and stock indices rose on relief. The Fed’s updated projections (“dot plot”) show a median of two further cuts this year, signaling a dovish tilt even as inflation forecasts held near 3 percent for 2025. Traders now expect continued easing through year-end.

Implications for Consumers and Businesses

Lower rates should ease borrowing costs on credit cards, auto loans, and business financing. However, savers may see slimmer returns on deposits. The full impact hinges on the Fed’s next moves and incoming economic data.

This article is prepared for immediate publication. Sources: Reuters, Federal Reserve press release.