Fed Cuts Rates by 25 bps at September FOMC Meeting

September 17, 2025. In a widely anticipated move, the Fed reduced its benchmark interest rate by 25 bps at the conclusion of the September FOMC meeting, lowering the target range to 4.00%–4.25%. The decision marks the Fed’s first easing since December 2024, reflecting a pivot toward supporting employment amid a cooling labor market.

The vote passed 11-to-1, with newly appointed Governor Stephen Miran dissenting in favor of a deeper 50 bps cut. Fed Chair Jerome Powell, in his press conference, stressed the need to balance risks: “Recent data show a labor market that is cooling more rapidly than anticipated, with job growth stagnant and unemployment risks on the rise.

Why the Fed Cut Rates by 25 bps ?

The September FOMC meeting decision reflects concern over a rapidly weakening labor market. August payrolls added just 22,000 jobs, and revisions erased 911,000 jobs from April 2024 to March 2025. At the same time, inflation remains sticky at 2.9%, driven partly by tariffs.

For consumers, the cut provides modest relief: variable-rate credit cards (averaging 21% interest) and adjustable mortgages will decline slightly. Businesses gain cheaper financing for expansion, while savers face shrinking yields on high-interest savings accounts and CDs.

The move signals the Fed’s priority: stabilizing employment, even while inflation remains above target.

Market Reaction to Fed Cutting Rates by 25 bps and Economic Impact

Markets welcomed the outcome for the Fed deciding on 25bps cuts. The Dow Jones Industrial Average jumped 450 points, reflecting relief that the Fed avoided a larger cut that might have signaled deeper problems. Treasury yields edged lower, with the 10-year settling near 4.07%, while equities in rate-sensitive sectors like housing and tech saw gains.

Analysts suggest the measured pace avoids spooking investors, keeping inflation expectations anchored. Economists argue the cut balances immediate relief for borrowers with caution on future inflation risks.

Outlook for More Cuts in 2025

The Fed dot plot projections suggest two additional 25 bps cuts before year-end, potentially lowering the rate to 3.50%–3.75% by December 2025. Beyond that, 2026 may see just one more cut, as policy approaches a neutral stance near 3%.

Still, dissenting voices like Miran’s, backed by political pressure from the Trump administration, favor faster easing. Powell reiterated the Fed’s data-dependent approach: if labor conditions worsen or inflation eases, more cuts are likely; if inflation persists, pauses are possible.