Fed Kicks Off Easing Cycle with First Rate Cut of 2025

Ending a nine-month halt in interest rate changes, the Federal Reserve lowered its target rate by 25 basis points on September 17 to a range of 4.00%-4.25%. This decision shows increased worry about a slowing labor market even while inflation stays over the Fed's 2% target. Chair Jerome Powell underlined "downside risks" to employment, noting a sharp drop in job development. Non-farm payrolls have decelerated dramatically; three-month job gains fell to 29,000 by August from 175,000 earlier in the year, and the unemployment rate rose somewhat. The Fed gave labor market concerns top importance, therefore indicating a move toward monetary accommodation despite inflationary pressures brought on by increased food and clothing prices.

Looking forward, the Federal Open Market Committee (FOMC) foresees further rate reductions in the next year, with the federal funds rate predicted to fall to 3.6% by the end of the year. Revised forecasts predict two more 25 basis point cuts are probable in 2025 since the Fed expects 1.6% GDP growth for the year—up somewhat. from past projections, despite still high inflation at 3.0%. The Fed's longer-run forecast calls for inflation reaching its 2% objective by 2027 as rates gradually stabilize. Powell admitted continued uncertainty in the economic forecast but reiterated the Fed's dual responsibility of price stability and maximum employment.

With only recently appointed Governor Stephen Miran voting against a greater 50 basis point decrease, the FOMC generally supported the decision. Miran maintained, mirroring long-standing political demands from President Trump for bigger rate decreases, that weak labor markets called for more forceful intervention. This most recent correction shows the Fed's resolve to solve labor market problems while carefully controlling inflation and more general economic risks.