On September 17, 2025, the Federal Reserve held a two-day monetary policy meeting and announced after the meeting a reduction of the federal funds interest rate target range by 25 basis points, with the new range being 4.00% to 4.25%. This is another rate cut by the Fed following three rate cuts in 2024, and it is the first rate cut of 2025.

Although this interest rate cut decision was approved, it did not receive unanimous support from all voting members of the Federal Open Market Committee (FOMC). Notably, new Fed governor Stephen Milan disagreed with this interest rate cut, advocating for a larger reduction of 50 basis points.

The latest dot plot released by the Fed indicates that officials have adjusted their expectations for interest rate cuts in 2025. The current median expectation is that there will be two rate cuts in 2025, each by 25 basis points, which is one more than the June forecast. However, this does not mean that the rate cut path for the next few years is set in stone. According to current expectations from officials, there may be one 25 basis point rate cut in both 2026 and 2027.

At the subsequent press conference, Fed Chairman Powell provided an explanation for the decision to cut interest rates. He pointed out that the vitality of the U.S. labor market is weakening, and there are downside risks to employment. This rate cut can be seen as a risk management measure, but he also emphasized that there is currently no need for a rapid adjustment of the interest rate. Powell's speech somewhat calmed market sentiment, resulting in a relatively stable response from the financial markets.

This interest rate cut decision reflects the Fed's cautious attitude towards the economic outlook. Although inflationary pressures have eased, the uncertainty in the job market has prompted the Fed to take a relatively mild adjustment to its monetary policy. The future direction of the Fed's policies will continue to depend on changes in economic data, especially the performance of the job market and inflation indicators.