The Federal Reserve approved its third interest rate cut of 2025 on Wednesday, lowering its benchmark borrowing rate by a quarter percentage point but signaling a slower and more uncertain path for future reductions. The move, widely expected, places the federal funds rate in a range of 3.5% to 3.75% and reflects what policymakers described as a cautious shift amid persistent inflation pressures and uneven economic data.
The vote revealed unusually sharp divisions within the Federal Open Market Committee. Three members opposed the decision—the most dissent seen since 2019—with one governor arguing for a deeper cut and two regional bank presidents preferring no reduction at all. Several nonvoting participants also registered objections, underscoring a growing split between policymakers prioritizing inflation control and those focused on supporting a cooling labor market.
Fresh projections released with the decision showed only one additional rate cut expected in 2026 and another in 2027. The long-range outlook places the federal funds rate at about 3% once policy normalizes, but the official forecasts highlighted substantial disagreement across the committee.
Economic conditions have complicated the Fed’s decision-making. Inflation remains stuck above the central bank’s 2% target, with its preferred price index showing a 2.8% annual rate in the latest data. At the same time, job creation has slowed sharply, hiring and firing have both weakened, and private-sector layoff announcements have climbed. The Fed also raised its expectations for economic growth in 2026, projecting GDP to expand 2.3%, an improvement from earlier forecasts.
Alongside the rate cut, the Fed announced it will resume buying Treasury securities in response to strains in short-term funding markets. The central bank will begin with $40 billion in Treasury bill purchases starting Friday, with elevated buying expected for several months before tapering.
The decision comes as Chair Jerome Powell nears the end of his term, with only three policy meetings remaining before President Donald Trump is expected to nominate a successor. Analysts say political pressure could intensify, as the administration has signaled a preference for lower interest rates in evaluating its pick. Prediction markets currently favor National Economic Council Director Kevin Hassett as the likely nominee.
Source: CNBC