Following its two-day policy meeting, the Federal Reserve has decided to cut interest rates for the first time since December, one year after launching its easing cycle. Officials serving on the 12-member Federal Open Market Committee (FOMC) voted on Sept. 17 to lower the benchmark federal funds rate by a quarter point from the target range of 4.25% to 4.5%.
The federal funds rate, which has been left unchanged since January, is a key policy rate that influences borrowing costs for businesses, consumers, and governments.
In his final keynote address at the central bank’s annual retreat in Jackson Hole, Wyoming, Fed Chair Jerome Powell signaled a renewed focus on the maximum employment side of the institution’s dual mandate. He pointed to the “curious kind of balance” in the labor market "that results from a marked slowing in both the
supply of and demand for workers."
“This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” Powell said in his Aug. 22 speech.
Recent data indicators suggest that employment conditions are slowing. In addition to the worse-than-expected August jobs report and annual preliminary benchmark revisions that showed payroll growth was overestimated by almost one million between March 2024 and March 2025, the number of Americans filing new applications for unemployment benefits reached a four-year high last week.
Investors are now looking beyond the September FOMC meeting, penciling in two more quarter-point rate cuts in October and December. The futures market anticipates the federal funds rate will eventually settle at around 3% by the end of next year.
"Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated," the FOMC said in a statement."Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen."
