Last Updated:September 18, 2025, 09:13 IST

US Fed cuts rates by 25 bps, signals two more reductions this year amid weak jobs data and pressure to ease borrowing costs

US Federal Reserve Chair Jerome Powell. (File Photo: AP)

The US Federal Reserve lowered its benchmark interest rate by a quarter percentage point on Wednesday and projected two more reductions this year, bowing to mounting pressure to ease borrowing costs amid signs of economic strain.

Fed Chair Jerome Powell said weakening labor market data was the key trigger for the decision. “Labor demand has softened, and the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant,” Powell told reporters. He added that he could “no longer say” the jobs market is “very solid.”

The Federal Open Market Committee (FOMC) voted 11-1 to cut the target range for the federal funds rate to 4%–4.25%, ending a run of five consecutive meetings where rates were held steady. The lone dissent came from Governor Stephen Miran, who pushed for a larger half-point cut.

The move highlights the Fed’s delicate balancing act. Inflation, fueled in part by tariffs, remains above the 2% target, yet job growth has slowed sharply in recent months. Powell stressed that the central bank was pursuing a “risk-management cut,” noting that policy decisions will now be taken on a “meeting-by-meeting” basis rather than signaling the start of an aggressive easing cycle.

The decision comes against the backdrop of heightened political scrutiny. President Donald Trump has repeatedly urged steeper cuts and is pressing legal efforts to reshape the Fed board. Newly sworn-in Governor Miran—on leave from his role as chair of the White House Council of Economic Advisers—was present at the meeting, alongside Governor Lisa Cook.

Markets responded swiftly. The dollar erased earlier losses as Powell spoke, while Treasury yields climbed, with the five-year yield rising six basis points to 3.65%.

Updated Fed projections showed policymakers now expect two more quarter-point cuts this year, compared with just one in their June outlook. They also see a slightly stronger growth profile for 2026, alongside modestly higher inflation.

The jobs picture, however, remains Powell’s focus. August hiring data showed the unemployment rate rose to 4.3%, its highest in nearly four years. With tariffs continuing to push up consumer prices, Fed officials remain wary that inflationary pressures may linger even as growth cools.

“This doesn’t feel like the beginning of an aggressive easing campaign,” said Stephen Stanley, chief economist at Santander US Capital Markets, to Bloomberg. “The path forward depends entirely on how the economy evolves from here.”

Aparna Deb

Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More

Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More

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