Here’s a quick update on the Fed’s recent rate cut.
What happened?
On Sept. 17, the Fed announced a 0.25% rate cut in response to a softening labor market and a slight uptick in inflation. This move brings the federal funds rate to about 4% to 4.25%, the key benchmark for many other interest rates across the U.S. economy.
Why the rate reduction?
The main reason behind this decision is the Fed’s concern about the labor market.
The Bureau of Labor Statistics’ August jobs report showed a clear slowdown in job gains, and the unemployment rate inched up.1
Remember, the Fed’s dual mandate is to keep both inflation low and employment high.
In simple terms, this cut is aimed at making it cheaper for businesses to borrow and invest—potentially encouraging more hiring.
Fidelity’s chart below highlights the job slowdown since 2023. You can also see the unemployment rate trending up:
Two More Rate Cuts Possible by Year-End
Analysts are forecasting the possibility of two more rate cuts before year-end.
The prospect of more cuts is good news for consumers with adjustable-rate debt, e.g., mortgages, credit cards and auto loans.
However, it usually also means lower interest earnings on savings and money market accounts. Also, rate cuts can trigger concern, i.e., if businesses and consumers believe the economy is headed for a slump, they may reduce spending and investment regardless of lower interest rates.
Looking Ahead
We’ll be watching key economic indicators like the upcoming jobs report and the latest inflation data, which will give us a clearer picture of the Fed’s next move at their October 28-29 meeting.
Please reach out with any questions.
–David Bunker, Financial Advisor & Licensed Fiduciary
P.S., In case you missed it, see our post: September 2025 Market Update & Key Trends
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
Sources:
1: Bureau of Labor Statistics, The Employment Situation—August 2025, https://www.bls.gov/news.release/pdf/empsit.pdf
2: Fidelity, Rate cuts are here, https://www.fidelity.com/learning-center/trading-investing/the-fed-meeting