Federal Reserve Lowers Key Interest Rate for First Time in Nine Months

WASHINGTON (AP) — The Federal Reserve cut its key interest rate by a quarter-point on September 16, 2025, aiming to boost the sluggish labor market. This move marks the first interest rate cut since December 2022, reducing the short-term rate to 4.1% from 4.3%.

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Federal Reserve Chair Jerome Powell advised that the central bank plans to lower rates again twice more this year as jobs growth stagnates and the unemployment rate ticks higher. Powell is set to hold a news conference on September 17.

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In a statement after the two-day meeting, the Fed acknowledged rising concerns about employment, noting, “Downside risks to employment have risen.” Nearly all officials favored the rate cut, with only Stephen Miran dissenting, calling for a more significant reduction.

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Falling interest rates can help reduce borrowing costs for mortgages and other loans, potentially encouraging consumer spending and business investment. Powell elaborated that today’s rate cut was part of a “risk management” strategy to curb growing risks in the job market.

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Investors had predicted multiple rate cuts this year, moving for five reductions in total. However, the Fed is only signaling two more cuts in 2025, and perhaps just one in 2026, which could disappoint some Wall Street analysts.

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While the unemployment rate remains low, recent data show a slowdown in job gains, prompting the Fed’s shift from an inflation-focused to a jobs-focused approach. According to Powell, “Job gains have slowed” and “the balance of risks has shifted,” influencing the decision to cut rates.

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The Fed’s decisions carry significant implications for financial markets. Rates from personal loans to credit cards are directly influenced by the fed funds rate, impacting consumer finance across the nation.

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Addressing the tensions post-meeting, Powell highlighted that the mixed views among experts reflect unique market conditions: “It’s not at all surprising to me that you have a range of views.”

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As he concluded, Powell emphasized the need to navigate the conflicting pressures of high inflation and weak job growth, which presents a challenging scenario for policymakers.