September 17, 2025
The Federal Reserve lowered its benchmark interest rate by 25 basis points, bringing the federal funds target range to 4.00 to 4.25 percent. This marks the first rate cut of the year and reflects growing concern over a cooling labour market and persistent economic uncertainty. Job growth has slowed noticeably, and the unemployment rate has ticked up to 4.3 percent. Although inflation remains above the Fed’s 2 percent target, the Committee chose to prioritize employment stability, signalling a shift toward a more supportive monetary stance.
The decision was not unanimous. Governor Stephen Miran dissented, advocating for a deeper 50 basis point cut, citing more urgent risks to economic momentum. The Fed’s updated projections suggest two additional rate cuts may follow before year-end, with one more expected in 2026. GDP growth was revised slightly upward, but unemployment is forecasted to rise further.
Operationally, the Fed adjusted the interest on reserve balances to 4.15 percent and maintained its balance sheet runoff strategy. This means it will continue reducing its holdings of Treasury securities and agency mortgage-backed securities, even as it eases rates. The Committee emphasized that future policy decisions will remain data-driven, guided by developments in inflation, employment, and broader financial conditions.
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