OECD: Fed expected to cut key rate again in 2025, with two more cuts in early 2026.

OECD: Fed expected to cut key rate again in 2025, with two more cuts in early 2026.

The Federal Reserve has signaled its intention to cut the benchmark overnight lending rate by 0.25 percentage points to a range of 4%-4.25% . This move, driven by growing U.S. labor market concerns, comes amidst a broader economic slowdown in the first half of 2025, with job gains moderating, unemployment ticking up, and inflation rising to elevated levels. The Federal Reserve Board's decision to lower the rate is aimed at supporting maximum employment and 2% inflation goals .

The Federal Reserve's latest action follows a contentious debate within the Board, with Governor Stephen Miran dissenting and advocating for a more aggressive rate cut, arguing that the current policy is too restrictive and poses material risks to the Fed's congressional mandate of seeking maximum employment . Miran's dissent highlights the differing perspectives on the appropriate monetary policy stance, with some officials overestimating the risk of inflation, particularly the role of tariffs in increasing price pressures .

The latest rate cut is expected to have a mixed impact on consumers and businesses. For individuals, variable-rate debts such as credit cards, auto loans, and adjustable-rate mortgages are likely to become more affordable as lenders pass along the lower rates. However, fixed-rate loans will not change, but new ones could become more affordable. For instance, 30-year fixed mortgage rates, currently hovering around 6.5%, might dip slightly in the coming weeks, making homebuying or refinancing easier for first-time buyers or those upgrading .

On the other hand, savings accounts, CDs, and money market funds will yield less return—potentially dropping from 4-5% to closer to 3-4% soon. This could squeeze the budget for individuals relying on interest income. For businesses, the rate cut may encourage borrowing and investing, leading to more hiring and wage growth, which could benefit those job hunting or seeking better-paying careers.

Looking ahead, the OECD expects the Federal Reserve to cut the key rate again in 2025, with two more cuts in early 2026. These further cuts are anticipated to support the labor market and mitigate the economic slowdown .

References
https://lynnwoodtimes.com/2025/09/17/federal-reserve-cut/
https://finance.yahoo.com/news/fed-miran-calls-slashing-main-161944981.html
https://apnews.com/article/federal-reserve-mirin-trump-interest-rate-cut-a19c9e23fe88293b6cbf6c7830a5d41b