Fed Rate Cut September 2025: First Move of the Year as Jobs Slow

Intermediate | September 22, 2025

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What Happened: Fed Rate Cut September 2025

On September 17, 2025, the U.S. Federal Reserve (the Fed) cut its benchmark interest rate by 25 basis points (0.25%) for the first time since December. The new target range is 4.00%–4.25%. This Fed rate cut September 2025 marks the first move in nearly a year. (Reuters)

Why Did the Fed Make This Move?

The decision to implement the Fed rate cut September 2025 comes amid signs of weakening in the job market: hiring has slowed, weekly unemployment claims have increased, and fewer hours are being worked. (Reuters) Fed Chair Jerome Powell said supporting employment is now a top priority.

At the same meeting, Fed officials projected that there will be two more rate cuts before the end of 2025. But they emphasized that future decisions will depend on upcoming economic data. (Reuters)

Not Everyone Agrees

There was not full agreement: newly sworn‑in Fed Governor Stephen Miran dissented, arguing that a larger cut—by 50 basis points—would have been better. Inflation remains a concern: it is still above the Fed’s 2% target, especially in housing and food costs. Fed officials said inflation is “sticky,” meaning it may not fall quickly. (Reuters)

Market Reaction

Financial markets responded with caution. Bond yields moved, and investors are watching what the Fed will do at its next meetings—particularly in October and December. The “dot plot”—the Fed’s way of showing its rate projections—indicates more easing (lowering rates) may be ahead. (Reuters)

Vocabulary

Benchmark (noun) – a standard or point of reference.
Example: The Fed uses the federal funds rate as a benchmark for other interest rates.
Basis point (noun) – one‑hundredth of a percentage point (0.01%).
Example: A 25 basis point rate cut means interest rates drop by 0.25%.
Dissent (noun) – disagreement, especially in a formal vote.
Example: Governor Miran showed his dissent by voting for a bigger cut.
Inflation (noun) – the rate at which prices for goods and services rise.
Example: High inflation makes everyday goods more expensive.
Sticky (adjective) – not easy to reduce or move; persistent.
Example: Price increases for housing are sticky even when other costs drop.
Easing (noun) – a move to make borrowing cheaper (lower rates).
Example: The Fed signaled that more easing may happen this year.
Mandate (noun) – an official order or responsibility.
Example: The Fed’s mandate is to keep both prices stable and employment high.
Projections (noun) – estimates about what will happen in the future.
Example: The Fed’s projections show two more cuts in 2025.
Yield (noun) – return on investment, especially bonds.
Example: Bond yields changed after the Fed’s announcement.
Cautious (adjective) – careful about risk or potential problems.
Example: Investors were cautious after the Fed cut rates.

Discussion Questions (About the Article)

Why did the Fed decide to cut the rate now—what economic signals pushed them?
What is the significance of the dissent by Governor Miran?
How does the Fed balance concerns about inflation vs. job market weakness?
What are the risks if inflation remains “sticky”?
How might businesses and consumers be affected by lower interest rates?

Discussion Questions (About the Topic)

Should central banks focus more on inflation or on employment? Why?
When is it good—and when is it risky—for interest rates to be low?
How do rate cuts affect things like mortgages, car loans, or savings?
What are possible consequences if inflation stays above targets for a long time?
How does government policy (taxes, spending) interact with central bank policy?

Related Idiom or Phrase

“A cautious step” – a small move taken carefully, without rushing.
Example: The Fed’s 25 basis point cut was a cautious step, not a dramatic change.

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This article was inspired by: Reuters