Fed Cuts Rates by 25 bps at September FOMC Meeting

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.