Fed Cuts Rates by Quarter Point, Signals Further Easing

Lead The Federal Reserve on Wednesday lowered its benchmark federal funds rate by 25 basis points to a 4.00-4.25 percent target range and indicated two more cuts may follow this year to address a slowing job market and elevated inflation.

Nut Graf Facing signs of decelerating growth and rising downside risks to employment, the Fed’s Federal Open Market Committee (FOMC) opted to “recalibrate” policy with its first rate reduction since December, aiming to balance its dual mandate of maximum employment and 2 percent inflation.

Key Details

  • Rate Decision and Rationale
  • The FOMC lowered the federal funds rate by 0.25 percentage point, citing moderated economic activity, slower job gains and inflation that “remains somewhat elevated.”
  • Chair Jerome Powell emphasized that the decision reflects a shift in risk assessment: potential labor‐market weakness now outweighs upside inflation concerns.
  • Dissent and Projections
  • Eleven of twelve voting governors backed the action; Stephen I. Miran dissented in favor of a half‐point cut.
  • The updated “dot plot” shows a majority of participants forecast two additional quarter‐point cuts before year-end, with one projection calling for a total reduction of 75 basis points.
  • Market Reaction
  • U.S. equities rose briefly before ending mixed; Treasury yields slipped modestly as traders lifted the odds of another cut at the late-October meeting to over 90 percent.
  • Forward Guidance
  • The committee pledged to “carefully assess incoming data, the evolving outlook, and the balance of risks” when considering further adjustments and remains committed to reducing its securities holdings.

Subheadings for Quick Scan Monetary Policy Shift

  • First rate cut in nine months signals a more dovish Fed stance.
  • Focus turns to evolving labor‐market data and inflation pressures.

Economic Outlook

  • Growth indicators cooled in early 2025; unemployment ticked up but remains low.
  • Inflation has risen above 2 percent, prompting continued vigilance.

Next Steps

  • FOMC meets next on October 28-29; markets price in a high probability of another quarter‐point reduction.
  • Powell’s next press conference will offer clues on the pace of future easing.