On Wednesday, the Federal Reserve cut its benchmark interest rate by 0.25 percentage point, saying a weakening labor market and elevated uncertainty now pose more serious challenges to its dual mandate than earlier this year.
The revised target range for the federal funds rate is 4.00% to 4.25%, down from 4.25% to 4.50%. The move is the first cut of 2025 after a long pause. In its statement, the Fed said “job gains have slowed,” unemployment has “edged up,” and inflation “remains somewhat elevated.” It added that downside risks to employment have increased and reaffirmed it is “strongly committed” to returning inflation to 2% over time.
The Fed said it will continue reducing its balance sheet by allowing Treasury and agency mortgage-backed securities to run off, a process in place since 2022. Officials said they will consider “incoming data, the evolving outlook, and the balance of risks” when weighing any further adjustments.
A concurrent implementation note set the interest rate paid on reserve balances at 4.15%, effective Sept. 18, and lowered the primary credit (discount) rate to 4.25% on the same date. The New York Fed’s Open Market Desk was directed to conduct operations to keep market rates within the new target range.
- Fed funds target: 4.00%–4.25%
- IORB (interest on reserves): 4.15% as of Sept. 18
- Primary credit rate: 4.25% as of Sept. 18
- Balance sheet: Runoff continues
- Vote: 11–1; Miran favored a 0.50-point cut
The vote was 11–1. Chair Jerome H. Powell and Vice Chair John C. Williams were joined by Governors Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Austan D. Goolsbee, Philip N. Jefferson, Alberto G. Musalem, Jeffrey R. Schmid, and Christopher J. Waller in backing the decision. Governor Stephen I. Miran dissented, favoring a larger half-point cut.
Wednesday’s action followed the Sept. 16–17 policy meeting, one of four this year that include updated projections. Policymakers said they remain prepared to adjust policy if new risks emerge that could impede their goals.
Why it matters: The quarter-point move shifts emphasis toward supporting the labor market without abandoning the inflation fight. By moving modestly and keeping guidance flexible, officials left room to cut again if job losses deepen—or to hold steady if inflation proves sticky. For households and businesses, borrowing costs may ease at the margin while price pressures remain under close watch.
What’s next: The Fed said future moves will be data-dependent, pointing to labor conditions, inflation pressures and expectations, and financial and international developments in the months ahead. The next policy meeting is Oct. 28–29.
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