Fed Delivers Third Straight Rate Cut as Growth Slows and Labor Market Softens

With its third straight cut, the Federal Reserve reduced the target range for the federal funds rate by 25 basis points to 3.5%–3.75%. Policymakers named moderating economic growth, slowing job gains, and increasing unemployment through September, while noting that inflation remains somewhat high. Reaffirming its dual mission of maximum employment and 2% inflation, the Committee disclosed plans to acquire shorter-term Treasury notes to assist keep adequate reserves in the banking system.

The decision was not unanimous, highlighting rising disagreement among FOMC members. Three authorities disagreed: Austan Goolsbee (Chicago) and Jeff Schmid (Kansas City) wanted to keep rates constant, while Governor Adriana Kugler Miran advocated a more significant 50 basis point cut, reflecting different estimations of labor market risks and inflation persistence. Most people thought additional easing was warranted even when inflation stayed over goal because of the higher negative employment risks.

New projections show a path of slow cooling and normalisation. The median forecast for 2025 calls for 1.7% real GDP growth, 4.5% unemployment, 2.9% PCE inflation, and 3.0% core PCE, with GDP picking up to 2.3% in 2026, unemployment drifting toward a 4.2% longer-run level, and inflation nearing 2% by 2028. With an end-2025 median projected federal funds rate of 3.6%, easing toward a 3.0% longer-run level, Chair Powell highlighted that data dependence will define future policy changes, citing high uncertainty and a risk mix where some see downward risks to growth but upside risks to inflation as the Fed tries to carefully balance a softening labor market against its inflation target.