The US Federal Reserve cut its benchmark federal funds rate by 25 basis points on September 17, lowering the target range to 4.00%–4.25%, marking its first rate reduction since December 2024. The decision, widely anticipated by markets, comes after several months of holding rates steady. Policymakers cited a cooling labor market, with job gains slowing and unemployment edging up, even as it remains relatively low. Inflation, however, continues to run above target, keeping price pressures a central concern. Recent data also suggests that overall economic activity has moderated, prompting the Fed to act cautiously while noting that risks to employment tilt downward while inflation risks remain on the upside.
Looking ahead, the Federal Reserve projects two more rate cuts before the end of 2025 if economic conditions unfold as expected. Still, officials stressed that future moves will be made on a meeting-by-meeting, data-driven basis, underscoring uncertainty about the pace of easing. The decision was not unanimous, as Governor Stephen I. Miran dissented, favoring a larger 50bps cut. Market reaction was mixed: while investors broadly welcomed the cut, some expressed skepticism about the cautious forward guidance. Treasury yields reflected that sentiment, with shorter-term yields rising as expectations for aggressive near-term cuts were tempered.
The rate move carries both opportunities and risks. Borrowers could see some relief in borrowing costs, though much depends on how swiftly additional cuts follow. Savers, meanwhile, may face lower returns if deposit rates adjust downward. More broadly, the Fed’s balancing act highlights the challenge of addressing slowing growth and labor weakness without letting inflation remain entrenched—a dynamic that has raised concerns of stagflation. Ultimately, the 25bps cut signals a policy shift toward easing, but the path ahead will hinge on incoming jobs and inflation data that will determine whether the Fed follows through with its projections.
Commenting on the Federal Reserve outcome by Umeshkumar Mehta, CIO, SAMCO Mutual Fund.
25 bps it is! Finally, the Fed delivered what the people of the United States waited for, after brief pauses in 2025. This festivity should not be celebrated right away, and one should gleam on the cascading effect of the most desired rate cut. It would be interesting to check how the US treasury bondholders react.
Going ahead, the smoothening of rates would be effective only if global tariff trickery doesn’t leave a big hole in the pocket of American consumers. Hence, this rate cut should not be seen as structural move, and the Fed would need enough data before the hope for low single digit regime returns.
Commenting on the Federal Reserve outcome by Arindam Mandal, Head of Global Equities at Marcellus Investment Managers.
FOMC action was inline with expectations with a 25 bps cut, signaling 2 further cuts rest of the year if need be. Job numbers remain the key as it expects unemployment rate to peak out at 4.5% by end of this year. The inflation oriented commentary was interesting as they expect not only the prices to stay elevated in near term due to tariffs, but also the expectation of inflation to stay higher than 2%, which is Fed’s target inflation till 2027. That would mark a 7 year streak of inflation staying higher than target.
