Federal Reserve Cuts Interest Rates for First Time in Donald Trump's Term
The Federal Reserve cut its key interest rate by a quarter point on Wednesday, its first reduction since December, and signaled that it expects two more cuts this year as concerns grow about the slowing labor market.
The move lowered the Fed’s benchmark short-term rate to about 4.1 percent from 4.3 percent. Chair Jerome Powell and other officials had held rates steady earlier this year while assessing the impact of tariffs, immigration policies and other Trump administration measures on inflation and growth.
On Tuesday, President Donald Trump said that Federal Reserve officials “have to make their own choice,” but added that they “should listen to smart people like me.” He has argued the Fed should slash rates by 3 percentage points.
Why it Matters
The Fed’s quarter‑point cut is intended to support job growth and lower borrowing costs for households and businesses at a time when monthly payroll gains have weakened sharply and unemployment has ticked up to roughly 4.3 percent.
Monetary policy affects mortgage, student loans as well as auto and business lending rates and therefore consumer spending and investment. Fed forecasts released with the decision show officials expect a modest path of additional reductions rather than an aggressive easing campaign, a calculation that will shape borrowing costs into 2026.
What To Know
The FOMC reduced the federal funds target range by 25 basis points to 4.0–4.25 percent. The change will bring the effective rate to approximately 4.1 percent, down from roughly 4.3 percent.
The vote was 11 in favor and 1 dissent, with Fed Governor Stephen Miran, a recent appointee of President Donald Trump, favoring a larger half‑point cut.
Russell Vought, director of the Office of Management and Budget (C), President Donald Trump (L) and Federal Reserve Chairman Jerome Powell visit the Federal Reserve on July 24, 2025.
Associated Press
Economic data driving the decision include an August payrolls gain of roughly 22,000 jobs and a 4.3 percent unemployment rate, alongside year-over-year consumer price inflation of nearly 2.9 percent.
The decision marks a policy shift by the Federal Open Market Committee (FOMC) toward reducing borrowing costs, following data that showed hiring nearly stalled and unemployment rising. Policymakers signaled expectations for additional quarter‑point cuts later in 2025
What People Are Saying
Pushpin Singh, managing economist for the Centre for Economics and Business Research, told Newsweek: “The Federal Reserve opted to cut interest rates today, marking a clear shift following months on hold. Pressure on the Fed has increased in recent months, following signs of a weakening labour market. Indeed, the Fed’s decision to not cut by a larger increment also reflects caution, with the Fed mindful that pass-through effects of tariffs have yet to fully materialise.
“Further cuts are on the cards, with the latest Fed projections showing a slim majority backing 50 basis points worth of cuts over the last two meetings this year. Ultimately, the trajectory for monetary policy will hinge on the inflation and labour market dynamics moving forward.”
Vincent Reinhart, chief economist at BNY Investments, told PBS: “We’re not at a break-glass moment. This is a recalibration.”
Jamie Cox, managing partner for Harris Financial Group, said in a statement emailed to Newsweek: “The Federal Reserve is late no more. It seems the Fed has not just pivoted, but made a complete U-turn. Markets seem to like what they see, but the dollar is another story entirely.”
What Happens Next
Policymakers projected additional quarter‑point reductions — two more in 2025 and one in 2026 in median forecasts — but the Fed’s path will hinge on incoming payroll and inflation reports, and officials warned that tariffs and other supply shocks could keep price growth above target.
Fed Chair Jerome Powell is scheduled to hold a news conference to explain the Committee’s reasoning and outlook that could provide further guidance for investors and economists.
Markets will watch upcoming employment reports and the consumer price index for signs the Fed can ease further without reigniting inflation. If job losses deepen or inflation eases, the Fed signaled a willingness to cut more; if inflation accelerates or tariff pressures persist, officials signaled they may slow the pace of reductions.
Update 9/17/25, 2:43 p.m. ET: This article was updated with additional information.
Update 9/17/25, 3:18 p.m. ET: This article was updated with additional information.