Federal Reserve cuts interest rates by 25 bps

The Federal Reserve lowered its benchmark interest rate by 25 basis points on Sept 17, setting the federal funds target range at 4% to 4.25%.

The Federal Open Market Committee (FOMC) cited slowing economic activity, weaker job growth, and persistently elevated inflation as key factors behind the decision. The Fed said risks to employment have risen, while inflation remains above its long-term 2% goal, underscoring the challenge of balancing its dual mandate.

The rate cut marks the latest adjustment in a cycle that began in 2022, when the central bank aggressively raised borrowing costs to combat the highest inflation in four decades. While inflation has since moderated, it has recently moved higher, prompting concerns that price pressures could become entrenched.

The Fed also confirmed it will continue reducing its holdings of Treasury and mortgage-backed securities, a process known as balance sheet runoff, which tightens financial conditions even as rates fall.

The policy statement revealed a split within the committee. Stephen Miran dissented, favoring a larger 50 basis point cut, highlighting the internal debate over how quickly to ease monetary policy amid uncertainty about the outlook. Chair Jerome Powell and Vice Chair John Williams, along with the majority of members, supported the more incremental move.

The Fed also adjusted supporting tools: it lowered the interest rate on reserve balances to 4.15% and reduced the primary credit rate to 4.25%. The New York Fed’s open market desk will maintain the new target range through operations including repurchase and reverse repurchase agreements.

This is a developing story.

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This article was generated with the assistance of AI and reviewed by editor Jeffrey Albus before publication.

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