US Fed meeting: In line with expectations, the US Federal Reserve’s Federal Open Market Committee (FOMC), chaired by Jerome Powell, cut the key benchmark interest rate by 25 basis points on Wednesday, 17 September 2025. This brings the federal funds rate down to a range of 4.00% to 4.25%. This was the first Fed rate cut since December 2024, when the central bank had lowered rates by 25 basis points.
Recent weakness in the job market had raised expectations that the Fed would cut rates even though inflation remains above its 2% target level.
“Recent indicators suggest that the growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” said the Federal Reserve.
The US unemployment rate jumped to 4.3 per cent in August, up from 4.2 per cent in July. US job growth was at 22,000 in August, sharply dropping from 79,000 in July 2025. Besides, the US economy created 9,11,000 fewer jobs in the 12 months through March than previously estimated.
US Fed policy: Key highlights
Here are five key takeaways from the US Fed’s September policy decision:
1. US Fed cuts rates
The US Fed trimmed benchmark interest rates by 25 bps and said that it will assess incoming data, the evolving outlook, and the balance of risks to decide if more rate cuts are required.
The FOMC voted in favour of a 25-basis-point rate cut by an 11:1 majority. Stephen Miran was the only dissenter, preferring to lower the target range for the federal funds rate by 50 basis points.
“The committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4-1/4 per cent. In considering additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” said the US Fed.
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The central bank added that it will continue reducing its holdings of treasury securities, agency debt, and agency mortgage‑backed securities.
2. More rate cuts likely
The FOMC sees the possibility of the federal funds rate coming down to 3.6% by the end of the year. However, the central bank reiterated that it will assess incoming data and evolving situations before making further rate cuts in the coming months.
“The median participant projects that the appropriate level of the federal funds rate will be 3.6 per cent at the end of this year, 3.4 per cent at the end of 2026, and 3.1 per cent at the end of 2027. This path is 1/4 percentage point (25 bps) lower than projected in June,” said Powell.
3. Growth forecast sees a slight uptick
The FOMC economic projections show that the median participant projects US GDP to rise 1.6 per cent this year and 1.8 per cent in 2026 and 1.9 per cent in 2027, slightly stronger than projected in June.
According to the June projection, the US GDP was to rise by 1.4 per cent in 2025, 1.6 per cent in 2026, and 1.8 per cent in 2027.
The Fed underscored that growth of economic activity has moderated, with GDP rising at a pace of around one and a half per cent in the first half of the year, down from 2.5 per cent last year. Activity in the housing sector remains weak. However, business investment in equipment and intangibles has picked up from last year’s pace.
4. Fed flags downside risks to employment
The Fed highlighted moderating wage growth, declining labour force growth, and slowing payroll job gains.
“Labour demand has softened, and the recent pace of job creation appears to be running below the ‘breakeven’ rate needed to hold the unemployment rate constant,” said Powell.
“In this less dynamic and somewhat softer labour market, the downside risks to employment appear to have risen. In our SEP, the median projection for the unemployment rate is 4.5 per cent at the end of this year and edges down thereafter,” Powell added.
5. Inflation to remain above 2% till 2027
The Fed’s median projection for total PCE inflation is 3 per cent in 2025. This may fall to 2.6 per cent in 2026 and to 2.1 per cent in 2027. Hence, the central bank does not see its preferred inflation gauge coming below its 2 per cent target at least in the next two years.
“Near-term measures of inflation expectations have moved up, on balance, over the course of this year on news about tariffs, as reflected in both market- and survey-based measures. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 per cent inflation goal,” said Powell.
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