US Fed policy meeting 2025: Federal Reserve cuts interest rates by 25 bps; signals two more rate cuts in 2025

The Federal Reserve has cut the interest rate by 25 basis points in today’s policy meeting, setting the new benchmark interest rate in the range of 4-4.25% range, last seen in December 2022. The 25 basis point cut is on widely expected lines as the US economy continues to grapple with weak labour market conditions. The latest employment data for August showed that only 22,000 new jobs added to the economy, as compared to 73,000 jobs added in July. Further, the unemployment rate rose from 4.2% in July to 4.3% in August.

The official Federal Reserve statement read,"In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 percent. 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. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective."

The US markets closed mixed on Wednesday, with NASDAQ and S&P500 ending red with minor losses. While Dow Jones is closed 260 points higher. The US markets have seen a robust rally in 2025, as buoyant investor sentiment around AI stocks overshadowed the weak macroeconomic data.

After the Federal Reserve’s decision, prices of precious metals closed lower after a volatile session. Gold prices ended 0.8% lower at $3,660 per ounce. While Silver prices plunged 2% on Wednesday

On the Treasury front, the US 10Y jumped 1.3% to close at 4.06%, indicating reduced economic confidence and sustained deflation in the US economy. The dollar index fell further after the rate cut as investor confidence dwindled in the US economy due to weak labour market conditions, high debt levels and sustained inflation.

Economic projections for 2025

Apart from the rate cut, the Federal Reserve governor, Jerome Powell, also released the dot plot for economic projections. The dot plot indicates two more rate cuts in 2025 along with median GDP growth of 2% for the rest of 2025, which could inch higher above 2% in 2026.

The Federal Reserve also sees the core PCE inflation rising to nearly 3% in 2025, much higher than the 2% target. In addition, majority of the Federal Open Market Committee members emphasised the risk of unemployment to economic growth.