Federal Reserve Cuts Rates 25 Basis Points Amid Slowing Job Growth

After a nine-month hiatus, the Federal Reserve resumed its interest rate cuts, lowering the federal funds rate target range by 25 basis points to 4.00% to 4.25%. This decision, announced during the early hours of September 18, Beijing time, was in line with market expectations. The last time the Federal Reserve cut rates was a year ago, in September 2024, when it reduced rates by 50 basis points, 25 basis points, and 25 basis points in September, November, and December of that year, respectively. Since then, the Federal Reserve maintained the rate unchanged through five consecutive meetings in 2025 until this latest decision.

The Federal Reserve's statement indicated that recent indicators show a slowing pace of job growth and a slight increase in the unemployment rate, which remains low. Inflation has risen and remains elevated. To support its goals and considering the balance of risks, the committee decided to lower the federal funds rate target range by 25 basis points to 4.00% to 4.25%.

Compared to the July statement, this latest declaration shifted its assessment of the labor market from "unemployment remains low, and the labor market conditions are good" to "job growth has slowed, and the unemployment rate has risen slightly but remains low." Additionally, the statement now includes the phrase "inflation has risen." When adjusting the target range, the statement emphasized considering "the balance of risks." The description of the conditions for adjusting the target range removed the phrase "magnitude and timing."

The statement also noted that the committee will continue to monitor the impact of future economic data on determining the appropriate monetary policy stance. If risks arise that could impede achieving the committee's dual mandate, the committee will be prepared to adjust the monetary policy stance accordingly. The committee's assessment will consider a wide range of information, including labor market indicators, inflation pressures and expectations, and data on financial and international developments.

One vote was cast against the decision, by the newly appointed Federal Reserve Governor, who favored a 50 basis point cut. The governors who had voted against the rate cut in the previous month, supported the decision this time. The newly appointed governor is known for being a key architect of the Trump administration's economic agenda, while the other two governors were nominated by the current U.S. President. Out of the seven governors, three were nominated by the Trump administration, and the remaining four by the Democratic administration.

In the September statement, the committee emphasized its commitment to achieving maximum employment and a 2% inflation target over the long run. The statement also highlighted the high level of uncertainty surrounding the economic outlook and noted that the committee is aware of the dual risks to its mandate. The committee judged that the risks of a downturn in employment have increased. To support its goals and considering the balance of risks, the committee decided to lower the federal funds rate target range by 25 basis points to 4.00% to 4.25%.

The committee will continue to evaluate future data, changing prospects, and the balance of risks when considering further adjustments to the federal funds rate target range. The committee remains committed to supporting maximum employment and returning inflation to its 2% target. In assessing the appropriate monetary policy stance, the committee will continue to monitor the impact of future economic data. If risks arise that could impede achieving the committee's dual mandate, the committee will be prepared to adjust the monetary policy stance accordingly. The committee's assessment will consider a wide range of information, including labor market indicators, inflation pressures and expectations, and data on financial and international developments.