Federal Reserve Cuts Rates by a quarter of a percentage point to 4%-4.25%, Lowest Since Dec 2022

Published Date: September 18, 2025

Last Modified : September 27, 2025

The Federal Reserve lowered its benchmark rate by a quarter point to 4%-4.25% on September 17, 2025, the lowest since 2022, to support a slowing job market. With inflation at 2.9% and more cuts signaled, the move aims to ease borrowing costs for consumers and businesses.

Written by: Archana N

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Edited by: GlimMarket Editorial

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Reviewd by: Dileep K Nair

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The Federal Reserve cut its benchmark interest rate by a quarter of a percentage point on September 17, 2025, bringing the federal funds rate to a range of 4% to 4.25%, the lowest since December 2022. The decision, announced after a two-day Federal Open Market Committee meeting, marks the first rate reduction of 2025 and responds to a cooling labor market and persistent inflation above the Fed’s 2% target, Reuters reported. The vote was nearly unanimous, with 11 of 12 members in favor; Governor Stephen Miran dissented, pushing for a half-point cut, according to the committee’s statement.

This move, widely anticipated by markets, aims to bolster economic growth as job gains slow and unemployment edges up. The Fed’s latest projections, known as the “dot plot,” suggest two additional quarter-point cuts by year-end, potentially lowering the rate to 3.5% to 3.75%, per Investopedia. Chair Jerome Powell emphasized a cautious approach, citing inflation at 2.9% in August and a 4.3% unemployment rate as key drivers, CNBC reported.

Markets reacted modestly, with the S&P 500 closing mixed and 10-year Treasury yields steady at 4.15%. The decision follows months of debate within the Fed, amplified by political pressure from the Trump administration for faster easing. The central bank’s statement underscored its dual mandate to support employment while curbing price pressures, noting elevated economic uncertainty.

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Economic Pressures Prompting the Rate Cut

The Fed’s action comes amid signs of economic slowdown. Data from the Bureau of Labor Statistics show nonfarm payrolls rose by only 22,000 in August, down from 142,000 a year earlier, while unemployment ticked up to 4.3%. Inflation, though down from its 2022 peak, climbed to 2.9% year-over-year in August from 2.7% in July, driven by tariff-related costs and services, Reuters noted. These trends pushed the Fed to shift from its tightening stance, which had held rates at a two-decade high to tame post-pandemic price surges.

Political dynamics also played a role. The Trump administration has openly pressed for aggressive rate cuts, with recent moves to influence the Fed’s board, including the failed attempt to oust Governor Lisa Cook. The Senate’s confirmation of Stephen Miran, a Trump nominee favoring looser policy, added a dovish voice, though the board remains split. The Fed’s statement acknowledged “downside risks to employment” as a key factor, signaling a pivot to prioritize job growth.

This cut reverses a tightening cycle that began in 2022 to combat inflation, which hit 9.1% that June. Historical Fed data show the last comparable easing cycle, in 2019, saw three cuts before a pause. Economists surveyed by Bloomberg expect a gradual descent to avoid reigniting price pressures, with markets pricing in a 65% chance of another cut in November.

From GlimMarket’s perspective, this measured cut reflects the Fed’s balancing act: supporting jobs without fueling inflation, though tariff-driven price risks could complicate future moves. Investors should watch for shifts in consumer spending data to gauge the cut’s efficacy.

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How the Rate Cut Affects Consumers and Businesses

The Fed’s decision ripples across borrowing and saving, with varied impacts on households, businesses, and investors. While the federal funds rate directly influences short-term bank lending, its effects on consumer and business finances unfold gradually, shaped by broader market dynamics.

Mortgage Borrowers See Limited Relief

Mortgage rates, tied to 10-year Treasury yields rather than the federal funds rate, have already dipped to 6.13% for a 30-year fixed loan, down from 7.2% earlier in 2025, per Freddie Mac data cited by CNBC. The Fed’s cut may nudge yields lower, but experts warn of volatility due to tariff concerns. Homebuyers and refinancers could see monthly payments drop slightly, by about $50 on a $300,000 loan if rates fall another 0.25%, though high home prices limit affordability. Adjustable-rate mortgages, more sensitive to Fed moves, may offer quicker savings.

Credit Card Debt Remains Costly

Credit card rates, averaging 20.1% according to Bankrate, are directly tied to the Fed’s benchmark via the prime rate. This cut could lower annual percentage rates by a quarter to half a point by early 2026, saving $25-$50 annually on $5,000 of debt, CNBC reported. However, with rates near historic highs, relief will be modest for the 45% of Americans carrying balances, per Federal Reserve surveys.

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Savings Yields Begin to Slip

Savers face a downside. High-yield savings accounts and certificates of deposit, offering 4.6% and 4% respectively, will see yields erode, per DepositAccounts data. Money market funds, yielding 4.08% as of September 11, are also set to decline, Investopedia noted. Retirees relying on fixed-income returns may feel the pinch, prompting a shift to longer-term bonds to lock in rates.

Small Businesses Gain Breathing Room

Small businesses, grappling with high borrowing costs, benefit from lower rates on short-term loans and lines of credit. The National Federation of Independent Business reports 60% of owners cite financing costs as a top challenge. A quarter-point cut could reduce interest on a $100,000 loan by $250 annually, easing cash flow for retailers and manufacturers, though persistent inflation limits gains.

Personal Loans and Auto Financing Ease Slightly

Personal loans and auto loans, with rates at 12% and 7.5% respectively per Fed data, may see modest reductions. Borrowers refinancing high-rate debt could save $10-$20 monthly on a $20,000 loan, though lenders may tighten standards if economic uncertainty grows, Reuters noted. Auto buyers may find better terms, but inventory shortages keep prices elevated.

Policy Outlook and Economic Implications

The Fed’s signal of two more cuts by year-end suggests a trajectory toward 3.5%, but risks abound. Core PCE inflation, at 3% projected by year end, remains sticky, and tariff policies could push prices higher, per Bureau of Economic Analysis estimates. A slowing job market in which 22,000 jobs added last month, raises recession fears, though Powell called the economy “fundamentally sound” in his press conference, Reuters reported.

Markets expect measured easing, with fed funds futures pricing a 3% floor by late 2026, per Bloomberg. However, Miran’s dissent for a larger cut signals internal rifts, potentially amplified by Trump’s push for sub-3% rates. Legal battles over Fed autonomy, like the recent Lisa Cook ruling, add uncertainty, risking dollar volatility and bond market swings.

GlimMarket analysts suggest businesses and investors diversify to hedge against rate and policy shifts, with small-cap stocks and floating-rate bonds offering potential upside if cuts accelerate. The Fed’s cautious path aims to avoid past mistakes, like the 1970s stagflation, but political pressures and global trade tensions demand close monitoring.

This cut marks a pivot to growth, but its success hinges on inflation trends and labor data. For consumers and businesses, relief will be gradual, tempered by structural challenges like housing costs and trade policies. Policymakers face a delicate task, and markets will watch November’s meeting for clues on the Fed’s next steps.

Disclaimer

This news article is based on publicly available information from leading news portals as of September 17, 2025. While every effort has been made to ensure accurate and balanced reporting, economic data and policy decisions may evolve, potentially altering the context. GlimMarket has no financial stake in the Federal Reserve or related entities discussed. The purpose of this piece is to inform readers about the Federal Reserve’s interest rate decision and its economic implications; it is not financial advice, investment guidance, or a policy recommendation. Readers should consult trusted financial advisors, official government statements, and independent sources before making lending, borrowing, or investment decisions.

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