The US Federal Reserve lowers interest rates by 0.25 percentage points.

U.S. Federal Reserve Chair Jerome Powell speaks at a press conference in Washington, D.C., on September 17, 2025, after the Federal Open Market Committee's interest rate policy statement is released. Image Source: Reuters

As the central bank becomes increasingly concerned about the state of the labour market in the country, the Federal Reserve lowered its key interest rate by a quarter point on Wednesday, September 17, 2025, and announced it would do so twice more this year.

The Fed reduced its short-term rate from 4.3% to roughly 4.1% in what is its first cut since December. As they assessed the effects of tariffs, stricter immigration enforcement, and other Trump administration policies on inflation and the economy, federal officials, led by Chair Jerome Powell, had maintained their rate at its current level this year.

However, since hiring has essentially stopped in recent months and the unemployment rate has increased slightly, the central bank's attention has swiftly shifted from inflation, which is still slightly above its 2% target, to jobs.

Reduced interest rates could increase hiring and growth while lowering borrowing costs for business, auto, and mortgage loans.

At a press conference after the Federal Reserve's two-day meeting, Mr. Powell stated, "The downside risks to employment appear to have increased in this less dynamic and somewhat softer labour market."

To the dismay of Wall Street, federal officials also hinted that they plan to lower their key rate twice more this year but only once in 2026. Investors had forecasted five cuts for the remainder of this year and the following year prior to the meeting.

Stephen Miran, who was appointed by President Donald Trump and confirmed by the Senate in a hurried vote late Monday (September 15, 2025), just hours before the meeting started, was the only Federal policymaker to disagree with the ruling. Miran favoured a larger half-point cut, but Mr. Powell informed reporters that Federal officials didn't "support" the larger cut.

The outcome of the meeting indicates that Mr. Powell was able to put together a show of unity from a committee that includes Miran, two other Trump appointees from his first term, and a Federal Governor, Lisa Cook, whom Mr. Trump is trying to fire. Many economists had predicted that there would be more dissent.

Threats to the Federal's long-standing independence from daily politics coexist with a difficult economic climate. While hiring has slowed, inflation has remained stubbornly high. According to the consumer price index, it increased 2.9% in August compared to the same month last year, up from 2.7% in July and significantly above the Fed's 2% target.

Weaker hiring and higher inflation are unusual because a slowing economy usually makes consumers cut back on spending, which slows price increases. Last month, Mr Powell implied that even if tariffs raise prices even more, slow growth might control inflation.

Separately, many legal experts view Mr. Trump's attempt to fire Ms. Cook as an unprecedented assault on the Federal's independence, as it marks the first time a president has attempted to remove a Federal Governor in the central bank's 112-year history.

Ms. Cook has been accused of mortgage fraud by his administration, but this accusation comes after Mr. Trump has heavily criticised Mr. Powell and the Federal Reserve for not lowering interest rates more quickly and sharply.

Late on Monday, September 15, 2025, an appeals court maintained a previous decision that Ms. Cook's due process rights were violated by the termination. Additionally, a lower court had previously decided that Trump's removal of Ms. Cook lacked adequate justification. The Senate voted in favour of Mr Miran's nomination late on Monday, September 15, 2025, and he was promptly sworn in on Tuesday, September 16, 2025.

Federal officials "have to make their own choice," but "they should listen to smart people like me," Mr. Trump stated on Tuesday, September 16, 2025. The Federal Reserve should lower rates by three full percentage points, according to Mr. Trump.

The Federal Reserve is in a different position than many other central banks abroad as a result of its decision to lower interest rates. Since inflation has mostly decreased and the economy has so far suffered little from U.S. tariffs, the European Central Bank kept its benchmark rate unchanged last week.

The Bank of England is also anticipated to maintain its rate on hold on Friday, September 19, 2025, given that inflation, at 3.8%, is still higher than in the US.