As expected, the Federal Reserve cut US interest rates by 25 basis points to a range of 4% to 4.25% at the Federal Open Market Committee’s September meeting, taking the key federal funds rate to their lowest level since December 2022.
- US rates fell to their lowest level since December 2022
- 11 of 12 FOMC members voted for the 25bp cut
- The US labour market has weakened
As expected, the Federal Reserve (Fed) cut US interest rates by 25 basis points to a range of 4% to 4.25% at the Federal Open Market Committee’s (FOMC’s) September meeting, taking the key federal funds rate to their lowest level since December 2022.
“We are strongly committed to maintaining our independence” (Fed Chair Jerome Powell)
This was the Fed’s first rate cut since December 2024, and Fed officials generally expect the federal funds rate to fall further, forecasting an average rate of 3.6% at the end of this year, 3.4% at the end of 2027, and 3.1% at the end of 2027. 11 of the 12 members of the FOMC voted in favour of the cut, with one member – recently appointed by President Donald Trump – voting for a larger cut of 50 basis points.
President Trump has put Fed Chair Jerome Powell under considerable pressure to cut rates, and his aggressive criticisms have raised questions over the future independence of the central bank. Following the rate cut, Chair Powell reiterated: “We are strongly committed to maintaining our independence.”
Policymakers appear to have become more concerned about the economic outlook for the US. The labour market is showing signs of weakening and the annualised rate of consumer price inflation reached 2.9% year on year in August – considerably above the Fed’s 2% inflation target. Looking ahead, the Fed raised its average inflation forecast for 2026 from 2.4% to 2.6%, after which inflation is predicted to ease to 2.1% in 2027 and 2% in 2028.
