Federal Reserve Cuts Interest Rate by 0.25%: Two More Cuts Expected in 2025

Well, the moment many in the financial world have been waiting for has arrived. Today, on September 17, 2025, the Federal Reserve announced a quarter-percentage-point cut to its key interest rate, bringing the federal funds rate target down to a range of 4% to 4.25%. This marks the first time this year that the Fed has lowered rates, and importantly, their forward-looking projections, often called the “dot plot,” suggest they’re planning for two more cuts before 2025 wraps up.

This signals a shift in their approach, aiming to support employment growth while still keeping a close watch on inflation, which remains a bit higher than they’d like. It’s a complex picture with a lot of moving parts, and I want to break down exactly what this means for all of us.

Federal Reserve Approves Interest Rate Cut and Signals Two More by Year's End

What Happened Today and Why It Matters

Let's dive into the specifics of this Federal Open Market Committee (FOMC) meeting. The FOMC, the group within the Fed that actually makes these interest rate decisions, met on September 16th and 17th, 2025. The economy has been showing some signs of slowing down. We’ve seen job growth ease up a bit, and the unemployment rate, while still low, has ticked up ever so slightly. On top of that, inflation hasn't fully settled back down to the Fed's target of 2%. Factors like ongoing tariff policies have also been adding to price pressures, making things a bit tricky for the Fed.

So, their decision to cut rates is a move to try and boost the economy and prevent it from slowing down too much, especially concerning jobs. It’s about balancing their two main goals: keeping employment as high as possible and keeping prices stable (low inflation). The fact that they’re signaling more cuts suggests they believe the economy needs a bit more help in the coming months.

The Details of the Decision: A Closer Look

The vote to cut the rate was pretty decisive, with 11 members in favor and just one, Governor Stephen I. Miran, voting against it. Governor Miran actually wanted a larger cut of 0.50%, which tells me there’s definitely a discussion happening within the Fed about how aggressive they should be. This internal debate is a good sign in my opinion; it shows they aren't just blindly following a script but are actively considering different economic scenarios.

Beyond the main federal funds rate, the Fed also adjusted other key rates. They lowered the interest paid on bank reserves held at the Fed to 4.15% and the rate for overnight loans to banks (the primary credit rate) to 4.25%. These adjustments are all designed to encourage banks to lend more money, which in turn helps the broader economy.

The official statement from the FOMC was carefully worded. They acknowledged that economic activity has “moderated” and that job gains have “slowed.” They also noted that inflation remains somewhat elevated. The phrase “downside risks to employment” is particularly telling – it means they're worried about job losses increasing. This is why they’re leaning towards easing policy. However, they also reiterated that they’ll be looking at all the incoming data – like jobs reports, inflation numbers, and economic growth figures – to decide what to do next.

This rate cut follows a period where the Fed had kept rates steady since December 2024. They had been holding the line as they navigated the choppy waters of economic recovery and rising inflation over the previous couple of years.

The Economic Puzzle: Why This Cut and the Pace

It’s a tightrope walk for the Fed. On one hand, the economy is showing signs of cooling. Projections for economic growth this year have been nudged up a bit, but it’s still growing at a moderate pace. The unemployment rate is expected to stay around 4.5% by the end of the year, which is a healthy number. But inflation, as measured by the Personal Consumption Expenditures (PCE) price index, is still projected to be around 3.0%, with the core PCE inflation (which excludes volatile food and energy prices) at 3.1%. That’s still above their 2% target.

President Trump has also been quite vocal, calling for lower interest rates to stimulate the economy. This political pressure, while the Fed maintains its independence, adds another layer of complexity. The sole dissenting vote from Governor Miran, who is a Trump appointee, likely reflects these differing views on the urgency and magnitude of rate cuts needed.

The notion of a “soft landing” is what most economists and the Fed itself are hoping for – guiding the economy down from red-hot inflation without causing a major recession. A gradual, quarter-point cut is often seen as a way to achieve this, as it’s not so aggressive that it overheats the economy again, but it’s enough to provide some breathing room.

However, there are definitely different opinions out there. Some analysts believe the Fed should be acting more decisively to head off a potential recession, while others worry that any easing too soon could reignite inflation, especially with concerns about government spending and the national debt. The forecasts from Fed officials themselves, shown in the “dot plot,” reflect this range of views. Nine officials are projecting three total rate cuts this year (adding up to 0.75%), while six anticipate just one, and one official thinks up to 1.5% in cuts might be appropriate. This spread shows that even within the Fed, there isn’t a complete consensus on the future path of interest rates.

A Look Back: Following the Rate Trail

It’s always useful to see how current actions fit into the bigger picture. After the aggressive rate hikes the Fed implemented in 2022 and 2023 to fight the rampant inflation that followed the pandemic, rates were held steady throughout 2024. The last time they began cutting rates was in September 2024, with a larger 0.50% move. This year’s initial cut is more measured, kind of like the careful steps taken in 2007 as the economy was heading into the Great Financial Crisis.

Here’s a quick look at how federal funds rates have moved over the past decade, to give you some historical context:

Year	Key Action	Target Range at Year-End	Primary Reason
2015	Hike (0.25%)	0.25%–0.50%	Normalizing rates post-recession
2018	Multiple hikes	2.25%–2.50%	Controlling inflation
2019	Cuts (0.75% total)	1.50%–1.75%	Impact of trade wars on growth
2020	Emergency cuts to near-zero	0%–0.25%	COVID-19 pandemic shock
2022–2023	Aggressive hikes (4.75% total)	5.25%–5.50%	Combating post-pandemic inflation
2024	Cut (0.50% in Sep)	4.25%–4.50%	Labor market cooling observed
2025 (as of Sep)	Cut (0.25%)	4.00%–4.25%	Growing risks to employment

As you can see, the Fed has a history of adjusting its policy in response to economic conditions, and 2025’s actions are aimed at achieving that elusive soft landing.

What This Means for You and Me: The Ripple Effect

When the Fed cuts interest rates, it’s like sending ripples through the economy. For consumers, this typically means borrowing money becomes cheaper. So, you might see lower interest rates on credit cards and auto loans. However, it’s important to remember that mortgage rates are more closely tied to longer-term government bond yields, and those have been influenced by concerns about the overall national debt, which has actually pushed mortgage rates up a bit.

Businesses also benefit from lower borrowing costs. This can encourage them to invest more, hire more people, and expand their operations. But, if those tariffs continue to push up the cost of raw materials, the positive impact of lower interest rates on business profits might be somewhat muted.

Globally, a cut by the U.S. Fed can weaken the dollar. This can make American exports cheaper for other countries, which is good for U.S. businesses selling overseas. However, it can also make things more expensive for countries that trade heavily in U.S. dollars and might put pressure on emerging economies.

Markets React: Gold Shines, Stocks Look Up (Mostly)

The financial markets generally reacted positively to the news. Gold, often seen as a safe haven during uncertain times, hit record highs, trading past $3,000 an ounce. This suggests investors are looking for stability. Stocks and even cryptocurrencies like Bitcoin (which is trading around $115,500) and Ethereum (around $4,474) saw a bump in optimism. Lower interest rates often encourage people to invest in riskier assets like stocks and crypto because the returns on safer options like savings accounts are lower.

However, you’ll often see a bit of a “sell the news” reaction where prices might jump on the announcement and then pull back a little. The overall market sentiment seems to be one of cautious optimism, but there’s always the risk that if inflation starts to creep up again rapidly, the Fed might have to pull back from its easing plans, causing volatility.

Looking at the updated Summary of Economic Projections (SEP) gives us a better idea of what Fed officials are thinking:

Key Economic Indicator	2025 Median Projection	2026 Median Projection	2027 Median Projection	2028 Median Projection	Longer Run Average
Federal Funds Rate	3.6%	3.4%	3.1%	3.1%	3.0%
GDP Growth	1.6%	1.8%	1.9%	1.8%	Not Applicable
Unemployment Rate	4.5%	4.4%	4.3%	4.2%	Not Applicable
PCE Inflation	3.0%	2.6%	2.1%	2.0%	2.0%
Core PCE Inflation	3.1%	2.6%	2.1%	2.0%	Not Applicable

It's worth noting the range of Fed funds rate projections for 2025, which spans from 2.9% all the way down to 4.4%. This wide range underscores the uncertainty among policymakers.

The Political Undercurrents

The Fed's decision doesn't happen in a vacuum. President Trump's desire for lower rates to potentially boost economic activity and his administration's use of tariffs have certainly played a role in the economic discussion. The appointment of Governor Miran, who seemed to favor a more aggressive rate cut, might be seen as an attempt to influence policy. However, the Fed has a statutory mandate to be independent, and while they listen to economic conditions shaped by government policy, their decisions are technically supposed to be based solely on their mandate of maximum employment and price stability. This independence is crucial to prevent short-term political pressures from derailing long-term economic health.

What's Next on the Horizon?

The year isn’t over, and the Fed still has two more scheduled meetings: one in late October (October 28–29) and another in early December (December 9–10). Their future actions will depend entirely on the economic data that comes in between now and then. If inflation proves to be stickier than expected, or if the economy shows surprising strength, they might pause on further cuts. Conversely, if the labor market weakens significantly, they could accelerate the pace of cuts.

The Fed’s projections suggest they see rates continuing to decline in 2026 and settling around 3.0% in the long run. But these are just projections, and the economy rarely moves in a straight line. The minutes from this September meeting, which will be released in a few weeks, will likely offer a more detailed look at the discussions and the differing opinions among the FOMC members.

Ultimately, this rate cut and the signal for more easing are designed to nurture a soft landing. But with ongoing economic uncertainties, the impact of tariffs, and global economic shifts, it's a path that requires a very close watch. As Fed Chair Powell himself has often said, they are prepared to adjust their policy as needed based on the incoming data. It’s a situation that many of us in the financial world will be watching intently.