The United States (US) Central Bank, the Federal Reserve (The Fed), finally cut its benchmark interest rate by 25 basis points (bps) to 4.00–4.25%. This decision was announced on Wednesday US time or early Thursday morning Indonesian time (September 18, 2025). This was the first cut this year after the Fed chose to hold interest rates at five previous meetings.
The Fed last cut interest rates in December 2024. From March 2022 to July 2023, the Fed raised interest rates by a total of 525 bps to curb inflation. After that, interest rates were held for a long time in the range of 5.25–5.50%, before being gradually cut in September, November, and December 2024, by a total of 100 bps.
This year, the Fed still has two important meetings scheduled: in late October and December.
Reasons for September Pruning
In its official statement, the Fed assessed that US economic growth would begin to slow in the first half of 2025. Employment weakened, the unemployment rate rose slightly but remained low, and inflation remained high.
“To support its objectives and in light of the changing balance of risks, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 4.00–4.25%,” the Fed wrote on its official website.
The Fed also emphasized that it remains prepared to adjust monetary policy if conditions worsen. They will consider labor market data, inflation trends, price expectations, and global developments.
Voting and Debate at the FOMC
The decision was made by a vote of 11 to 1. A majority of Federal Open Market Committee (FOMC) members agreed to cut interest rates by 25 bps. The only dissenting vote came from Stephen Miran, the new governor, who wanted a more aggressive cut of 50 bps.
Interestingly, two other Fed officials who were previously predicted to oppose the move, Michelle Bowman and Christopher Waller, actually supported a 25 bps cut. All three are appointees of US President Donald Trump, who has frequently pressured the Fed to cut interest rates quickly and aggressively.
Powell’s statement
In a press conference after the meeting, Jerome Powell, Chairman of the Fed, highlighted the weakening labor market.
“This marked weakening in both labor supply and demand is unusual in a less dynamic and somewhat weaker labor market. The risks of job losses appear to be increasing,” Powell said, as quoted by CNBC International.
Powell added that this cut puts monetary policy in a more neutral position, no longer as tight as before. However, he emphasized that this measure is more of a preventative measure or risk management rather than a response to a major crisis.
“There’s no truly risk-free path right now. You could think of this as a rate cut for risk management,” he stressed.
Economic Conditions and Inflation Risk
The US unemployment rate was recorded at 4.3% in August 2025, the highest since October 2021, although still historically low. Bureau of Labor Statistics data also revealed lower job creation than initially reported, with about 1 million fewer jobs created in the past 12 months.
Powell previously held interest rates on hold because inflation had not yet fallen to the 2% target. He also expressed concern about the impact of import tariffs imposed by the Trump administration, which could trigger higher consumer prices. Although companies have not yet fully passed on the costs of the tariffs to consumers, the effects are expected to be more pronounced in the remainder of 2025 and into 2026.