Fed Slashes Rates for the First Time in 2025 – More Cuts Coming
The rate cut was supported by 11 of the 12 FOMC members, with new governor Stephen Miran dissenting, advocating a larger 50-basis-point cut.
Quick overview
- The U.S. Federal Reserve cut its benchmark rate by 25 basis points to a range of 4%-4.25%, responding to weak employment data and persistent inflation.
- Fed officials indicated that further rate cuts are likely in 2025, with market expectations aligning for two additional cuts this year.
- Chair Jerome Powell highlighted a slowdown in job creation and increased uncertainty about economic prospects, attributing it to weaker labor force growth.
- The rate cut received broad support from FOMC members, although one member dissented in favor of a larger reduction, raising questions about central bank independence.
The U.S. Federal Reserve announced a 25-basis-point cut to its benchmark rate, bringing it to a range of 4%-4.25%, in a decision widely anticipated by the market.
The move reflects weak employment data in recent months, while inflation remains above the Fed’s 2% target. Officials also signaled that additional cuts are likely for the remainder of 2025.
“The recent data suggest that economic activity moderated in the first half of the year. Job creation has slowed and the unemployment rate has edged up slightly, but remains low. Inflation has risen and remains somewhat elevated,” the Federal Open Market Committee (FOMC) said in its statement. The committee highlighted that “uncertainty about economic prospects remains high” and that downside risks to employment have increased.
In his post-meeting press conference, Fed Chair Jerome Powell noted that the slowdown largely reflects weaker labor force growth due to lower immigration and reduced labor participation. He added that labor demand has softened, with job creation below the level needed to keep unemployment stable.
Market Expectations and Future Cuts
Market expectations quickly aligned with the Fed’s guidance. According to the CME FedWatch tool, investors now see two additional 25-basis-point cuts this year—on October 29 and December 10—totaling 50 points. The Fed’s “dot plot” projections also suggest a policy rate averaging 3.4% in 2026 and 3.1% in 2027, down from prior expectations of 3.6% and 3.4%.
Powell addressed the impact of tariffs, noting that while recent measures have begun pushing prices for some goods, their overall effect on inflation is expected to be temporary. Still, he acknowledged that longer-lasting inflationary effects remain a risk.
The rate cut was supported by 11 of the 12 FOMC members, with new governor Stephen Miran dissenting, advocating a larger 50-basis-point reduction. Questions about central bank independence arose due to Miran’s prior role as a top economic advisor to former President Trump.
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