After months of mounting pressure from President Donald Trump, the Federal Reserve on Wednesday cut its benchmark interest rate by 25 basis points to 4.00%-4.25%, delivering a widely expected move that ends a nine-month policy pause.
This marks the fourth cut in the current easing cycle – following moves in September, November and December 2024 – with policymakers signaling that further easing may follow.
“Job gains have slowed, and the unemployment rate has edged up but remains low,” the Federal Open Market Committee said in its September statement, marking a notable downgrade from July’s statement, which called labor conditions "solid."
The August nonfarm payrolls report showed a mere 22,000 jobs created, a steep drop from 79,000 in July. Over the last three months, the average monthly job gain has fallen to just 29,000 – a pace effectively indicating stagnation in employment trends.
The decision to cut interest rates by 25 basis points was not unanimous, as Stephen I. Miran — President Donald Trump's appointee replacing Adriana Kugler, who resigned in August — favored a larger, 50-basis-point reduction at this meeting.
The Federal Reserve’s updated September Summary of Economic Projections signals a modestly stronger economic outlook than previously expected — but also a faster pace of interest rate cuts over the next two years.
Real GDP growth for 2025 was revised up to 1.6%, compared to 1.4% in the June projections. The 2026 forecast was raised to 1.8% from 1.6%, and 2027 to 1.9% from 1.8%, suggesting the Fed now expects a slightly more resilient economy heading into the next presidential election year. The long-run potential growth estimate remains unchanged at 1.8%.
The unemployment rate projection for 2025 remained steady at 4.5%, but the 2026 figure was lowered to 4.4% from 4.5%, and 2027 to 4.3% from 4.4%. The long-run unemployment estimate is unchanged at 4.2%, indicating the Fed sees labor markets cooling gradually, but not collapsing.
On the inflation front, headline PCE inflation was unchanged at 3.0% for 2025, while the 2026 projection rose to 2.6% from 2.4%, suggesting slower disinflation ahead. The 2027 outlook held steady at 2.1%, with the longer-run target still fixed at 2.0%.
Core PCE inflation — which strips out food and energy — is now expected to hold at 3.1% in 2025, unchanged from June. However, the Fed raised its 2026 projection to 2.6% from 2.4%, while keeping 2027 at 2.1%. These revisions reflect persistent underlying price pressures, particularly in services and shelter.
Finally, the projected federal funds rate has been revised lower across the board, signaling a slightly faster pace of rate cuts ahead.
The Fed now sees rates ending 2025 at 3.6%, down from 3.9% in June, indicating that further 50-basis-point cuts are in the pipeline.
The 2026 projection was cut to 3.4% from 3.6%, and 2027 to 3.1% from 3.4%. The longer-run neutral rate remains at 3.0%.
Fed Chair Jerome Powell will speak at 2:30 p.m. ET, as markets look for clarity on the Fed’s policy path and economic outlook.
| Economic Variable | 2025 | 2026 | 2027 | Longer Run |
|---|---|---|---|---|
| Real GDP Growth ( |
1.6% | 1.8% | 1.9% | 1.8% |
| Real GDP Growth ( |
1.4% | 1.6% | 1.8% | 1.8% |
| Unemployment Rate ( |
4.5% | 4.4% | 4.3% | 4.2% |
| Unemployment Rate ( |
4.5% | 4.5% | 4.4% | 4.2% |
| PCE Inflation ( |
3.0% | 2.6% | 2.1% | 2.0% |
| PCE Inflation ( |
3.0% | 2.4% | 2.1% | 2.0% |
| Core PCE Inflation ( |
3.1% | 2.6% | 2.1% | |
| Core PCE Inflation | 3.1% | 2.4% | 2.1% | |
| Federal Funds Rate ( |
3.6% | 3.4% | 3.1% | 3.0% |
| Federal Funds Rate | 3.9% | 3.6% | 3.4% | 3.0% |
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Image created using artificial intelligence via Midjourney.
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