Federal Reseve Rate Cut And Its Effect.

What’s going on

Recent decision: a modest cut
In its September 2025 meeting, the Federal Open Market Committee (FOMC) cut its benchmark interest rate by 25 basis points, bringing the federal funds rate target to 4.00 % – 4.25 %.
The move was justified largely by signs of labor market softening and an increased perception of downside risks to employment.
However, inflation remains above the Fed’s 2 % goal, so caution is still warranted.
Diverse views within the Fed
- Stephen Miran, a newly appointed Fed governor, dissented. He preferred a bigger cut (50 bps) at the September meeting.
- Other Fed officials are more cautious. Chair Powell has stressed a gradual approach, warning that too aggressive cuts might risk derailing inflation control.
- At the same time, some Fed voices (e.g. Michelle Bowman) argue that the risks to employment are now more pressing and that the Fed may need to move more decisively.
Outlooks & market expectations
- Markets are pricing in further cuts later in 2025 (October is often cited as a likely candidate).
- The OECD suggests the Fed has room for up to three more cuts, potentially bringing rates down toward 3.25–3.50 % by spring 2026.
- Some analysts caution that markets may already be pricing in more cuts than the Fed is comfortable delivering, given inflation risks.

On inflation: The Fed still has to balance fighting inflation with supporting employment. Inflation is sticky above 2 % (e.g. core PCE is around 2.9 %)
On employment and growth: The Fed seems to see the labor market as the more vulnerable leg right now. Softening job growth is weighing on their view.
On markets / assets:
- Lower rates are generally favorable to equities (especially growth / tech) and can spur borrowing / investment. BlackRock
- Bonds may rally in the short term, especially intermediate maturities, as yields fall with the easing cycle.
- The U.S. dollar may also come under pressure, boosting foreign assets for U.S.-based investors.
On expectations vs. reality: If the Fed underdelivers (i.e. cuts less or slower than markets hope), that could spook markets or lead to “bond tantrums.” On the flip side, overcutting could reignite inflation.