US Federal Reserve lowers policy rate 25 basis points in 2nd cut of 2025

It is the second rate cut of 2025, as the bank had held the rate unchanged in the five previous meetings before cutting it at its September meeting.

The Fed said available data suggested that economic activity has been expanding at a moderate pace.

"Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments," said the central bank.

It noted that inflation has moved up since earlier in the year and remains "somewhat" elevated.

The Fed said the Federal Open Market Committee (FOMC), which makes decisions about interest rates, seeks to achieve maximum employment and inflation at the rate of 2% in the longer run.

"The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months," it emphasized.

The Fed said in considering the extent and timing of additional adjustments to the target range for the policy, the FOMC will "carefully" assess incoming data, the evolving outlook and the balance of risks.

"The Committee decided to conclude the reduction of its aggregate securities holdings on December 1," it added.

The decision to lower the rate by 25 basis points was supported by 10 of 12 governors, with Stephen Miran supporting a 50 basis point cut. Jeffrey Schmid voted for no change.

The move followed weak employment data in recent months, before a government shutdown caused a blackout of data releases. Maximum employment and stable prices are the dual mandate the Fed watches when determining monetary policy.

US non-farm payrolls increased by 22,000 jobs in August, below expectations, while the unemployment rate ticked up one-tenth of a percentage point to 4.3%. Private sector employment, meanwhile, fell by 32,000 jobs in September, contrary to expectations for an increase.

In September, the Bureau of Labor Statistics revised its employment statistics, showing 911,000 fewer non-farm jobs were created in the 12 months ending March 2025 than initially reported.

On the inflation front, consumer prices rose 3% on a yearly basis in September, while increasing 0.3% month-on-month, both below expectations.

The rate cut also followed US President Donald Trump's repeated criticism of the Fed Chair Jerome Powell, accusing him of failing to act swiftly as economic risks mount, and his intervention in the Fed's Board of Governors. Trump has repeatedly demanded that the central bank cut interest rates, citing moves by the European central banks and warned that delays could stall the US economy.

Trump attempted to fire Fed Governor Lisa Cook in August. She is one of the members of the central bank's Board of Governors that determines the monetary policy decisions. But Cook remained on the board after an appeals court's ruling, which indicated that the president cannot fire Cook. And the US Supreme Court blocked Trump from immediately firing Cook and declined to intervene while her lawsuit continues.

The central bank kept the rate at the historically high level of 5.5% from July 2023 to September 2024, before gradually lowering it to 4.5% last December.