Federal Reserve Cuts Rates 25 Basis Points, Dow Drops 0.10%

On the afternoon of September 18, Beijing time, U.S. stocks were mixed. The Federal Reserve cut interest rates by 25 basis points and predicted two more rate cuts for the year.

The Dow Jones Industrial Average fell 45.33 points, or 0.10%, to 45,712.57. The Nasdaq Composite Index dropped 263.37 points, or 1.18%, to 22,070.59. The S&P 500 Index declined 52.46 points, or 0.79%, to 6,554.30.

At 2 p.m. Eastern Time on Wednesday, the Federal Reserve decided to lower the benchmark interest rate by 25 basis points to a range of 4.00% to 4.25%, marking the first rate cut of the year and the resumption of rate cuts after a nine-month hiatus.

The Federal Open Market Committee (FOMC) approved a widely anticipated rate cut and hinted at two more rate cuts by the end of the year due to growing concerns about the U.S. labor market.

The FOMC voted 11-1 to reduce the benchmark overnight lending rate by 25 basis points. The dissenting vote was less than what Wall Street had previously expected. Following this decision, the overnight borrowing rate range was set at 4.00% to 4.25%.

The newly appointed Federal Reserve Governor was the sole policymaker who opposed the 25 basis point rate cut, advocating for a 50 basis point cut instead.

In the post-meeting statement, the committee described economic activity as "slowing" and added that "job growth is slowing," while noting that "inflation has risen and remains at a relatively high level." The combination of slowing job growth and rising inflation presents a conflict with the Federal Reserve's dual mandate of stable prices and maximum employment.

The Federal Reserve statement noted: "The uncertainty surrounding the economic outlook remains high. The Committee is closely monitoring the dual risks to its mandate and judges that downside risks to the labor market have increased."

In addition to the rate decision, officials in the closely watched "dot plot" (a chart reflecting individual rate expectations) indicated that there would be two more rate cuts by the end of the year. However, the chart showed significant disagreement: one dot (possibly from the newly appointed Federal Reserve Governor) indicated a cumulative 1.25 percentage point rate cut for the year.

The dot plot is anonymous, with each participant corresponding to one dot. The newly appointed Federal Reserve Governor has consistently advocated for significant rate cuts. Of the 19 participants, nine believed that only one more rate cut would be needed this year, while ten believed that two more rate cuts would be necessary (suggesting possible implementation at the October and December meetings). One official opposed any rate cuts, including the one on Wednesday.

The total economic outlook forecast released at the meeting showed that economic growth in 2025 would be slightly faster than the June forecast, while expectations for the unemployment rate and inflation rate remained unchanged from previous estimates.

Recent signals indicate that the U.S. economy continues to grow steadily, with consumer spending exceeding expectations. However, the labor market remains a contentious issue.

In terms of employment, the unemployment rate rose to 4.3% in August—still relatively low by historical standards but the highest since October 2021. Job growth has stagnated this year, and recent revised data from the U.S. Bureau of Labor Statistics show that the number of new jobs created in the U.S. economy over the 12 months prior to March 2025 was nearly 1 million fewer than initially reported.

On the economic data front for Wednesday, the number of new housing starts in the U.S. fell to an annualized rate of 1.307 million units, below expectations.

Data released by the U.S. Census Bureau on Wednesday showed that housing starts in August fell to an annualized rate of 1.307 million units from 1.429 million in July. Economists had previously estimated 1.365 million units. The forecast range for housing starts among 53 economists was between 1.25 million and 1.483 million units.

Housing starts in August decreased by 8.5%, while July saw a 3.4% increase. Single-family housing starts fell to 890,000 units, and multi-family housing starts decreased to 417,000 units.

Building permits fell from 1.362 million in July to 1.312 million in August, the lowest since May 2020. Economists had expected 1.37 million permits (with a forecast range of 1.32 million to 1.445 million among 41 economists).