Jerome Powell-led Federal Reserve gives first interest rate cut of 2025 and more to come

As widely anticipated, the Jerome Powell-led US Federal Reserve on Wednesday, September 17, slashed its key interest rate by 0.25 percentage points to bring it to a range of 4.00%–4.25%. The move aims to support economic growth amid worries over a slowing US labour market and rising inflation. The Fed signalled that further rate cuts may follow later in the year, depending on economic conditions.

What

does the September “dot plot” indicate?

After announcing their latest rate decision, officials shared their updated “dot plot”(a chart showing each member’s prediction for future rate changes). Most expect two more rate cuts before the year ends, according to a report on CNBC, with opinions varying widely.

One dot, possibly from Miran, who strongly supports lower rates, suggests a big drop of 1.25 percentage points, the report added. The chart doesn’t name anyone, but each dot represents one person’s view.

The CNBC report further indicated that out of 19 members:

– 10 expect two more cuts, likely in October and December

– 9 expect just one more cut

– 1 doesn’t want any cuts at all, not even the one just made

ALSO READ | Explained | What the Federal Reserve’s dot plot tells us about interest rates

What did Fed chair Powell say in the briefing?

During the presser, Powell said Wednesday’s decision reflects a desire to keep risks to the economy in check.

“You can think of this, in a way, as a risk management cut,” Powell said. He added that a “very different picture” of risks has emerged as the labour market has begun to cool off versus the threats on the inflation front.

The Fed chair also warned on Wednesday that he expects the effects of inflation on goods prices “to continue to build” through the rest of this year and into 2026.

Consumer price index (CPI) rose 2.9% on an annual basis last month, marking the largest gain since January. Since April, inflation has mostly accelerated on a month-to-month basis.

On whether he will leave as chair of the central bank after his term ends in May 2026, Powell said there’s “nothing new” to say on this topic.

How did Wall Street react?

Following the rate cut, US stock markets showed mixed reactions. The Dow Jones Industrial Average rose nearly 0.5%, while the S&P 500 dipped 0.2%, and the Nasdaq Composite fell over 0.4%.

US stocks eventually closed mixed, with the Dow Jones Industrial Average settling 0.5% higher, while the S&P 500 dropped 0.1% and the tech-heavy Nasdaq Composite shed 0.3%.