The Federal Reserve lowered its benchmark federal funds rate by a quarter percentage point to a range of 4.00%-4.25% on September 17, 2025, marking its first rate cut since December 2024.
The decision, approved by an 11-to-1 vote, responds to a slowing labor market, with job creation stagnant and unemployment rising to 4.3% in August, the highest since October 2021.
Despite solid economic growth, the Fed’s move reflects heightened concerns about employment over persistent inflation, which remains above the 2% target.
The rate cut occurs amid political pressure from President Donald Trump, who has urged aggressive rate reductions to boost housing and reduce government debt costs.
Trump’s appointee, Stephen Miran, the sole dissenter, advocated for a larger half-point cut.
Miran, recently confirmed to the Federal Open Market Committee, joined too late to influence economic projections.
Efforts to remove Governor Lisa Cook, accused of mortgage fraud but not charged, were blocked by a court, allowing her to vote for the cut.
The Fed’s updated projections indicate two additional rate cuts in 2025, likely at October and December meetings, but only one in 2026, signalling a cautious approach.
Economic growth forecasts are slightly higher than June’s, while unemployment and inflation outlooks remain unchanged.
The Fed noted increased downside risks to employment, with job gains slowing, but emphasised that recession risks are limited for now.
Inflation, driven partly by tariffs, continues to challenge the Fed’s dual mandate of stable prices and full employment.