The Fed Resumes Cutting

The Fed Resumes Cutting

As was widely expected, the Federal Reserve cut interest rates, lowering the target range for the federal fund rate by 25-basis points between 4 percent to 4.25 percent. The Federal Open Market Committee, the Fed's interest rate policy body, has long debated the potential tradeoff inherent in its dual mandate of promoting both price stability and maximum employment. Although inflation remains higher than desirable, the balance has tilted in recent weeks toward lowering interest rates to foster economic growth and, ultimately, more robust job growth. News last week of a substantial downward revision to payroll job data for the 12 months ending in March likely sealed the deal.

According to the FOMC statement, "The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen."

The FOMC voted 11-to-1 in favor of the 25-basis point cut. The lone dissent was cast by newly appointed Fed governor Stephen Miran, who called for a more aggressive reduction of 50-basis points. A cut of that magnitude was not in the cards, but today's action is not likely to be a one-off. The Fed appears poised to resume the easing stance it pursued in the fourth quarter of last year, with another 50-basis point of cuts expected by the end of the year.

Although driven to a greater extent by market forces, in contrast to the FOMC-controlled federal funds rate, longer-term rates have generally moved lower over the course of 2025. For example, the 10-year U.S. Treasury rate stands just above 4.1 percent at this writing, down from 4.6 percent in May and 4.8 percent in January. Mortgage rates have trended also lower, recently falling to their lowest in three years and sparking a resurgence in loan refinancings.

September 23rd, 2025