Fed Announces 25-Basis-Point Interest Rate Reduction
(MENAFN) The U.S. Federal Reserve on Wednesday announced a 25-basis-point reduction in the federal funds target range, lowering it to 3.75%–4%. This move marks the central bank’s second rate cut of the year.
The Federal Open Market Committee (FOMC), the Fed’s main monetary policymaking body, cited data showing the economy is growing at a moderate pace. Job creation has slowed, and the unemployment rate has ticked up slightly but remains low through August, according to the committee’s post-meeting statement.
The FOMC reiterated its long-term objectives of achieving maximum employment and keeping inflation around 2%.
"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 3-3/4 to 4 percent," the statement said.
It added, "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."
Of the 12 members present, 10 supported the 25-basis-point cut. Stephen Miran advocated for a 50-basis-point reduction, while Jeffrey Schmid preferred no change.
The rate decision comes amid challenges in obtaining reliable economic data, largely due to the federal government shutdown that began on Oct. 1.
"The shutdown of the federal government will weigh on economic activity while it persists," Fed Chair Jerome Powell said during a press conference, noting that the economic drag should reverse once the shutdown ends.
Powell emphasized that "a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course."
Addressing inflation, Powell highlighted that prices were stabilizing when excluding tariffs. "Inflation, away from tariffs, is actually not so far from our 2 percent goal."
Luke Tilley, chief economist at Wilmington Trust in Delaware, predicts the Fed will continue cutting rates into 2026. "Then that would bring them down to what we think of as the neutral range to 2.75 percent to 3 percent."
Franklin Templeton Investments, a global asset management firm, cautioned that ongoing inflation concerns could mean the Fed’s rate cuts are smaller than expected and that the terminal rate for this policy cycle may remain above 3.5%.
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