FED CUTS RATES FOR THE FIRST TIME IN 2025

The Federal Open Market Committee lowered the policy rate 25 basis points to 4.00-4.25% on Wednesday, its first cut of the year.

Fed Chair Jerome Powell called it a “risk management cut,” indicating a cautious start rather than an aggressive cutting cycle. The basis for the decision was the slowed payroll growth had brought the downside labor market risks closer to balance with the upside risks to inflation, and with policy already “clearly restrictive,” that balance justified a modest move.

Fed Funds Upper & Lower Bounds

The Fed’s new projections point to two more cuts in 2025, slightly higher GDP forecasts, an increase to inflation for 2026 to 2.6% (vs 2.4% in June), and a downtick to the 2026 unemployment rate to 4.4% (vs 4.5%).

Markets had largely priced in the quarter point move, now the focus turns to whether the Fed delivers one or two more cuts this year as the Initial Jobless Claims report from this morning eased some worries. Powell underscored that every decision will remain data dependent, which will place particular attention on the labor market, tariff pass-through, and long-term inflation expectations.