On Wednesday, the U.S. Federal Reserve announced a 25 basis-point cut to the federal funds rate, bringing the target range down to 4.0%–4.5%, aligning with market expectations but revealing internal divisions within the committee.

Decision Details

The Fed pointed to slower economic growth in the first half of the year, modest job gains, and a slight uptick in unemployment, while noting inflation remains somewhat elevated.
The committee reaffirmed its commitment to maximum employment and a long-term inflation target of 2%, acknowledging continued economic uncertainty.
The Fed also confirmed it will continue reducing holdings of government bonds and mortgage-backed securities as part of its quantitative tightening policy.

Committee Split

Federal Reserve Cuts Rates A strong majority, including Chair Jerome Powell, supported the rate cut, while member Steven Miran voted for a larger 0.50% cut, highlighting differing views on risk.

Updated Economic Projections (September 2025)

GDP Growth: Expected at 1.6% for 2025, rising to 1.9% by 2027.
Unemployment: Forecast to remain at 4.5% in 2025, easing to 4.3% by 2027.
Headline Inflation: This year, projected to decline from 3.0% to the Fed’s 2.0% long-term target.
Core Inflation: Estimated at 3.1% in 2025, falling to 2.0% by 2028.
Interest Rates: Expected to drop to 3.6% in 2025 and 3.0% over the longer term, slightly below prior forecasts.

Market Implications

A rate cut and a brighter economic outlook offer short-term support to markets. However, the committee’s internal split and persistent inflation pressures suggest that the path toward easier monetary policy will be gradual and challenging.

Federal Reserve Cuts Rates

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