Wall St

Fed cuts interest rates by quarter point and signals more cuts could be coming

Author: Andrew Ackerman Source: The Washington Post

September 17, 2025 at 14:35

Federal Reserve Chair Jerome H. Powell speaks during a news conference in July. (Manuel Balce Ceneta/AP)

The Fed’s cut is the first all year and the Fed signaled two more cuts are possible later this year.

The Federal Reserve cut interest rates by a quarter point Wednesday, its first reduction this year, as the economy showed signs of slowing and inflation remained elevated.

A majority of Fed officials expect to cut at least two more times this year, one more than they did a few months ago. But in a sign that the Fed is increasingly divided on the path forward, more policymakers signaled they have doubts about whether additional cuts are warranted at all this year.

“Uncertainty about the economic outlook remains elevated,” according to the statement released by the Fed announcing the interest rate cut.

The newest appointee to the Fed board, Stephen Miran, a top economic adviser to President Donald Trump, was the only Fed official to dissent, favoring a larger rate cut.

Wednesday’s well-telegraphed cut, which lowers the central bank’s benchmark rate to a range of 4 to 4.25 percent, is unlikely to bring much relief to borrowers. Investors will be watching instead for clues on how far and fast the Fed plans to go in lowering the cost of money. The Fed’s rate-setting policies trickle through the financial sector to influence what millions of consumers and businesses pay for mortgages and other types of loans.

Policymakers last cut rates in December 2024, followed by a pause for five consecutive meetings to gauge the fallout from Trump’s trade and immigration policies.

Though Trump has pushed for dramatically lower rates to juice the economy, what comes next may not be clearcut. Markets anticipate a string of cuts in the coming months and into 2026, but policymakers may opt for a more cautious approach as they confront an economy showing “stagflation-lite” signs — stubbornly elevated inflation paired with a weakened job market.

That leaves Fed Chair Jerome H. Powell with the delicate task of signaling how far the central bank is willing to go. Suggesting a series of cuts could fuel fresh market highs but also risk the perception that the Fed is yielding to White House pressure. A more cautious tone, meanwhile, could unsettle investors who are already counting on a string of reductions.

Powell’s comments at his post-meeting news conference Wednesday will likely offer the clearest clues about the central bank’s thinking on the path ahead.

Some former Fed officials warn that caution is still warranted. Pat Harker, who stepped down this summer as president of the Philadelphia Fed, said in an interview earlier this week that a single quarter-point cut makes sense given a cooling labor market but argued there’s little justification for launching a full rate-cutting cycle at this time, since inflation remains above the Fed’s 2 percent target and isn’t coming down any time soon. “There’s some expectation out there that they’re going to keep moving and I don’t see any justification for doing that,” said Harker, now of the Wharton School at the Unversity of Pennsylvania.

The meeting is one of the most unusual in years. It follows months of Trump’s attacks over the Fed’s reluctance to cut rates, as well as legal questions that left the lineup of participants in flux until practically the last minute.

A divided federal appeals court on Monday night ruled that Fed governor Lisa Cook can keep her job, turning aside an appeal by the Trump administration that sought to fire her ahead of the central bank’s meeting this week. Trump has accused Cook of mortgage fraud — a charge she denies — and has sought her dismissal, but the three-judge panel said the president violated Cook’s rights by not giving her a chance to defend herself against the accusations. The White House said it plans to ask the Supreme Court to allow Trump to remove Cook while she challenges her firing.

At nearly the same time as the appellate court ruled in Cook’s favor on Monday evening, the Senate confirmed Stephen Miran, a Trump loyalist and top economic adviser, to fill an open seat on the seven-member Fed board of governors. Miran was approved largely along party lines and joins the Fed under unusual circumstances: He is taking a leave of absence from the White House Council of Economic Advisers rather than resigning from the role.

The move allows him to return to the White House next year without another Senate confirmation, but has raised concerns among Democrats — and some Republicans — that he would be carrying water for a president who has demanded dramatically lower rates. Miran told lawmakers he would act independently.

A Duke University survey of former Federal Reserve officials and staff finds that respondents expect inflation to stay above the Fed’s 2 percent target for the next year or more, while unemployment hovers near 4.5 percent. Most back a gradual approach to rate cuts, warning that moving too aggressively could spark inflation or policy missteps, according to Jon Hilsenrath, a visiting scholar at Duke’s economics department who focuses on central bank issues and conducted the study.

While Powell last month opened the door to cut rates to bolster a slowing labor market, the central bank remains in a tricky spot, tasked with balancing its dual mandate of maximum employment and stable inflation.

Prolonged trade uncertainty risks slowing growth and unsettling financial markets — conditions that would normally prompt a rate cut. At the same time, tariffs could reignite inflationary pressures, potentially justifying higher rates instead. Some economists warn that price increases could take longer to show up than signs of a weakening economy.