Federal Reserve Cuts Interest Rates Again as Economic Growth Slows

On October 29, 2025, the Federal Reserve reduced its benchmark interest rate by 0.25 percentage points, setting the federal funds rate target range to 3.75%–4.00%. This marks the second consecutive rate cut, following a similar reduction in September. The decision aims to support economic growth amid signs of a cooling labor market and persistent inflation above the 2% target.

The Federal Open Market Committee (FOMC) voted 10–2 in favor of the rate cut. Stephen Miran, the newest Fed governor, preferred a larger 0.50 percentage point reduction, while Kansas City Fed President Jeff Schmid advocated for maintaining the current rate. This divergence underscores the challenges the Fed faces in balancing economic growth with inflation control.

Federal Reserve Chair Jerome Powell emphasized that future rate cuts are not guaranteed, highlighting divisions among officials and the challenges posed by limited economic data due to the ongoing government shutdown. He stated, "An additional rate cut in December is not a foregone conclusion—far from it." The shutdown has disrupted the release of key economic indicators, complicating the Fed's decision-making process.

Recent data indicates a slowdown in job creation, with the unemployment rate edging up to 4.3% in August, its highest point since 2021. Inflation remains above the Fed's 2% target, with core and headline inflation both rising 3.0% year-over-year, slightly under forecasts. These factors contributed to the Fed's decision to lower rates in an effort to stimulate economic activity.

Market reactions were mixed following the announcement. Major U.S. stock indexes initially climbed to new all-time highs but mostly turned lower after Powell's press conference, suggesting caution regarding future policy. The S&P 500 closed nearly flat, the Dow Jones Industrial Average dipped 0.2%, and the Nasdaq rose 0.5%. Treasury yields rose, reflecting diminished hopes for further Fed easing amid inflation concerns and the government shutdown delaying economic data.

The October rate cut follows a similar 0.25 percentage point reduction in September 2025, which lowered the target range to 4.00%–4.25%. Prior to these, the last rate cut occurred in December 2024. This trend indicates the Fed's proactive approach to addressing economic challenges.

The Federal Reserve also announced it will stop reducing its securities holdings starting December 1 to provide additional market support. This decision aims to maintain adequate liquidity in the financial system and ensure effective control over interest rates.

The Federal Reserve's second rate cut in 2025 underscores the central bank's proactive approach to addressing economic challenges. However, the cautious tone from Chair Powell and internal divisions within the Fed highlight the complexities of navigating monetary policy amid uncertain economic conditions.