Fed Cuts US Interest Rate 0.25% as Expected, Citing Weak Jobs Market

Concerns for a lacklustre job market and “somewhat elevated” inflation drove the decision to target a new 4.00%-4.25% rate range, according to a press release posted on the Fed’s website. Meanwhile, the central bank’s monetary policy makers warned that uncertainty about the economic outlook for the US remains “elevated”.

Markets little changed

Bitcoin jumped 0.6% in five minutes on the news before paring gains and dropping to almost $115,000 at 18:40UTC. The S&P500 index of US equities also slipped on the news.

Wednesday’s decision was a widely anticipated break from the previous nine months during which Fed Chair Jerome Powell hesitated to ease monetary policy out of concern for the uncertain outlook for the US economy. He repeatedly voiced concerns about the potential for higher inflation from factors including trade tariffs and the macroeconomic reaction to President Trump's protectionist trade agenda. In doing so, Powell, a former investment banker and Treasury Department official, has been resisting immense political pressure from the White House to change his stance.

“Big cut” hopes

US President Donald Trump had hoped for a “big cut” according to comments made to reporters on Sunday. Economists have gradually been moving closer towards this position during the northern summer with the CME FedWatch Tool indicating a 100% probability of a cut and, specifically, a 96% probability for the 0.25% cut two hours before the decision was announced.

A worsening outlook for US jobs has helped to make that case. The US labor market already showed signs of slowing in August 2025: 

• Nonfarm payrolls increased by just 22,000 jobs, far below expectations of 75,000;
• The unemployment rate rose to 4.3% from 4.2%;
• In addition, benchmark revisions revealed that 911,000 fewer jobs were added in the 12 months through March 2025 than earlier reported. 

"Downside risks" to jobs

That’s encouraged monetary policymakers to ease the situation for companies to borrow, hopefully stimulating the economy and rebalancing prospects for jobseekers. Powell described the job market as "unusual" and subject to "downside risks" during a press conference following the decision.

The President has relentlessly challenged Fed Chair Jerome Powell to slash rates this year, while also calling for another governor, Lisa Cook, who was appointed by former President Biden, to step down over allegations of mortgage fraud that Cook has denied.

Trump recently appointed ally Stephen Miran to the Fed committee this week, prompting concerns over his close allegiance to the president especially as Miran has not resigned his post as Chair of the White House Council of Economic Advisers. 

Miran dissents

The committee voted by 11-1 for the 25 basis point cut, with only Miran suggesting a preference for a 0.5% reduction.

The White House's attempts to interfere with the Fed's decision making and governance has called into question the central bank's capacity to remain independent, stirring interest from investors over the current stability of rulemaking in the US monetary system. 

Further cuts on the way?

The FOMC also indicated it would consider further rate cuts this year. According to its Economic Projections report, FOMC members see a 3.6% rate (versus today's new 4.00-4.25% rate) as a median average projection for the rate by the end of this year. One of the FOMC members even projected the target rate should come down by 1.25% before the end of the year. While the identities behind these future projections remain confidential, the most obvious candidate for such a bold move would be Miran.

The next opportunities to cut will be in October or December when the FOMC meets again. 

Other central banks

The Fed meeting was one of several central bank decisions this week, following the European Central Bank’s decision to hold rates steady at 2% last week.

• The Bank of Canada made its first rate cut since March earlier on Wednesday, settling at 2.5%;
• The Bank of England is set to hold its key interest rate at 4% on Thursday; and
• Japan follows before the end of the week. 

Lots to process

Add to that the various economic data releases sloshing through traders’ monitors and it's quite a week of information to process. Meanwhile, gold – the traditional safe haven – is close to an all-time high and equity markets are close to record peaks. Traders are processing the Fed's forward-looking statements with markets showing a mixed, muted reaction immediately following the Fed news.