The Federal Reserve cut the federal funds interest rate by 25 basis points today, September 17, setting the target range at 4.00%-4.25%. This marks the first policy easing since December 2024, in response to signs of a slowing labor market. The move aims to mitigate risks to economic activity and impacts borrowers, investors, and financial markets.
Context and Impact
The cut was implemented at the September meeting, lowering the rate from 4.25%-4.50% to 4.00%-4.25%. The change reflects concerns over cooling employment and a preemptive approach to cushion potential growth setbacks. The last similar easing was also a 25-basis-point cut in December 2024.
The decision was not unanimous. Governor Stephen Miran dissented, advocating for a 50-basis-point reduction, highlighting internal disagreement over the magnitude of easing. The dot plot showed broad dispersion: nine participants expected an additional cut in 2025, ten projected two cuts, and one did not support further cuts after September. The median projection anticipates two more cuts in 2025 and one in 2026.
In parallel, the Fed updated its macroeconomic projections:
-
Unemployment rate: currently 4.3%, rising to 4.5% by year-end, stabilizing at 4.4% in 2026, and returning to 4.3% thereafter.
-
PCE (Consumer Price Index): 3.0% this year —above the 2% target— falling to 2.6% in 2026 and 2.1% in 2027.
-
Core PCE (underlying inflation): 3.1% this year.
Implications
The Fed aims to balance inflation containment with employment support. The rate cut is intended to stimulate consumption and business investment amid signs of labor market weakness, though there is a risk of rekindling inflationary pressures if demand rebounds strongly.
The Fed’s guidance remains data-dependent, leaving markets watching upcoming employment and inflation indicators to gauge the magnitude and timing of future easing. Divergence among members suggests volatility in expectations and possible lag in the transmission of cuts to the real economy.
Key Data:
-
New federal funds interest rate range: 4.00%-4.25%
-
Median projection: two additional cuts in 2025
-
Expected PCE: 3.0%
-
Expected Core PCE: 3.1%
In summary, the Fed cuts 25 basis points today, September 17, 2025, for the first time since December 2024, keeping monetary policy data-dependent with potential additional adjustments based on employment and inflation trends.
