Fed Cuts Interest Rates by 25 Basis Points as Growth Slows and Inflation Persists

Key Highlights

• FED cuts rates by 25 basis points for the first time in 2025

• More rate cuts expected in 2025, amid growing economic uncertainty over Trump policies on Tariffs.

In 2025, the Federal Reserve hesitated to cut rates, citing economic uncertainty over Trump Tariffs and other financial policies.

However, with excessive political pressure, poor employment, and rising inflation, the Fed cut rates for the first time in 2025.

FED Cuts Rates by 25 Basis Points

The U.S. Federal Reserve has cut its benchmark interest rate by 25 basis points, lowering the target range for the federal funds rate to 4%–4.25%. The move, announced after the September FOMC meeting, reflects signs that economic growth has slowed, job gains are moderating, and unemployment has edged up, even if it remains historically low. Inflation, while easing from its peaks, is still above the Fed’s 2% target, keeping policymakers cautious.

The tone of the statement leaned dovish. According to the Wall Street Journal’s Nick Timiraos, most officials expect at least three more cuts before year-end. Only one member, Stephen Miran, dissented, arguing for a steeper 50 basis point cut to provide more substantial support for the economy. After massive pressure, the Fed cuts rates by 25% basis points.

Economic Risks Driving the Decision

The Fed acknowledged that uncertainty around the economic outlook remains high. Slowing job growth and rising downside risks to employment weighed heavily on the committee’s decision. At the same time, inflation has proven sticky, leaving the Fed balancing its dual mandate of stable prices and maximum employment.

By cutting rates, the central bank hopes to ease financial conditions and reduce the risks of a harder economic slowdown. Still, officials emphasized that further moves will depend on incoming data, including labor market trends, inflation readings, and global financial developments.

Looking Ahead, More Cuts Likely

The Fed’s updated dot plot suggests interest rates will fall further over the next two years. Policymakers expect rates to average 3.6% by the end of 2025, down from the 3.9% forecast in June. That outlook implies either two more 25 basis point cuts or one larger 50 basis point cut next year.

Beyond that, rates are projected to decline to 3.4% in 2026 and 3.1% in 2027, signaling a gradual return to lower borrowing costs. The longer-run forecast remains at 3%.

Economic Projections Revised

The Fed also tweaked its economic forecasts. U.S. GDP growth is now expected to reach 1.6% this year, slightly stronger than the earlier 1.4% projection. Growth in 2026 is forecast at 1.8%, also higher than June’s outlook.

Unemployment is projected to hold steady at 4.5% in 2025 before dipping to 4.4% in 2026, suggesting only modest labor market softening. Meanwhile, inflation as measured by the PCE index is expected to finish 2024 at 3%, then ease gradually to 2.6% in 2026 and near the Fed’s 2% target by 2027.

The Bottom Line

This rate cut signals a cautious shift in policy as the Fed navigates slowing growth, persistent inflation, and employment risks. While markets welcomed the dovish tilt, the Fed made clear that its decisions will remain data-dependent. Investors should expect more cuts ahead, but not without ongoing volatility as the economy finds its balance.

Previous EMCryptub article: Solana Digital Treasury: Pantera and Summer Capital bets on Solana with $1.25 billion.