Federal Reserve Cuts Rates by 25 Basis Points, Signals Two More Reductions in 2025

The U.S. Federal Reserve on Wednesday announced a 25-basis-point cut to its benchmark interest rate, lowering the federal funds target range to 4.00%–4.25%. 

The decision ends a streak of five consecutive meetings with rates held steady and comes as the central bank faces growing signs of labor market weakness and heightened economic uncertainty.

The rate cut, announced at the conclusion of the Fed’s two-day policy meeting, reflects what officials described as a “shift in the balance of risks” toward slower growth and employment deterioration. 

According to a statement from the Federal Open Market Committee (FOMC), recent data point to a noticeable deceleration in economic activity in the first half of the year, with hiring gains softening and unemployment edging higher, though still hovering near historically low levels.

"Inflation remains elevated and continues to exceed the committee’s long-term 2% target," the FOMC said in its statement, while affirming its dual mandate of maximum employment and price stability. “In light of the evolving outlook and increased downside risks to the labor market, the committee decided to lower the target range for the federal funds rate.”

The Fed also signaled a more dovish tilt for the remainder of 2025, with projections indicating two additional rate cuts are likely before year-end. This forward guidance suggests the central bank is prepared to continue easing if current economic trends persist.

The decision came with a notable split among policymakers. While Chair Jerome Powell, Vice Chair John Williams, and a majority of voting members supported the quarter-point cut, Fed Governor Steven Miran dissented, favoring a more aggressive 50-basis-point reduction.

The move also follows increasing pressure from the White House, as President Donald Trump, currently in his second term, has publicly urged the Fed to act swiftly to lower borrowing costs and sustain economic momentum. The administration has expressed concern that tight credit conditions could threaten both consumer spending and business investment heading into a critical election year.

Financial markets responded positively to the Fed’s announcement, with U.S. equities rising in afternoon trading and Treasury yields retreating. Investors largely welcomed the central bank's willingness to respond proactively to economic headwinds.

Despite the rate cut, the Fed reaffirmed its commitment to balance sheet normalization. The central bank will continue reducing its holdings of Treasury securities and agency mortgage-backed assets but noted it remains ready to adjust the pace “if warranted by evolving economic conditions.”

The FOMC emphasized that future policy decisions will remain data-dependent, with close monitoring of inflation trends, employment figures, and global economic developments. “The level of uncertainty around the outlook remains high,” the statement read, adding that downside risks to the labor market have become more pronounced in recent months.

This latest move marks a subtle but significant shift in the Fed’s policy stance after a year marked by caution and steady rates. In 2024, the Fed cut rates three times,  totaling a full percentage point,  with the last adjustment occurring in September.

With today’s decision, the central bank appears to be laying the groundwork for a more accommodative approach, even as it balances the risk of reigniting inflation with the need to stabilize a slowing economy.