(Vietnam Insider) – The U.S. Federal Reserve (Fed) has lowered interest rates for the first time this year, cutting its benchmark rate by 25 basis points to a range of 4.00%–4.25%. The decision, announced on September 17 after a two-day policy meeting, was largely in line with market expectations.
A Divided but Expected Decision
The move passed with near-unanimous support, though one governor, Stephen Miran, dissented, advocating for a deeper cut of 50 basis points. Analysts had already predicted a modest reduction, citing weakening economic momentum.
This marks the Fed’s first policy shift in 2025, following a pause after three consecutive cuts last year. Officials said they wanted to observe how inflation and employment trends evolved, particularly after President Donald Trump’s introduction of sweeping new import tariffs.
Fed’s Assessment: Slower Growth, Persistent Inflation
“The latest data suggest economic activity slowed in the first half of the year. Job growth has moderated, unemployment has edged up though remains low, while inflation has accelerated and remains elevated,” the Fed noted in its post-meeting statement.
The central bank signaled it expects to cut rates by an additional 50 basis points by year-end, followed by 25 basis points in both 2026 and 2027. Two more policy meetings remain this year, scheduled for October and December.
Officials revised their growth outlook upward, projecting U.S. GDP expansion of 1.6% in 2025 (versus 1.4% in June). They forecast unemployment to end the year at 4.5%, while the Fed’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) index – is expected to reach 3% in 2025 before easing to 2.6% in 2026.
Market and Asset Reactions
Although the federal funds rate directly applies only to overnight lending between banks, the Fed’s move affects borrowing costs across the economy. Lower rates typically reduce borrowing costs for businesses and households, encouraging investment and consumption.
Markets reacted with initial enthusiasm but later reversed course. As of Tuesday evening, the Dow Jones Industrial Average rose 0.7%, while the S&P 500 slipped 0.3% and the Nasdaq Composite fell 0.6%. Spot gold briefly surged to a record $3,708 per ounce before retreating to $3,684.
An Unprecedented Meeting Under Political Pressure
Observers described this Fed meeting as one of the most unusual in recent history. It took place amid political turbulence and changes within the Board of Governors.
Just a day earlier, the Senate confirmed Stephen Miran – President Trump’s nominee – as a temporary Fed governor. On the same day, Governor Lisa Cook won a legal challenge at the U.S. Court of Appeals, which ruled that the President could not dismiss her over a contested mortgage-fraud allegation.
Despite these developments, markets had almost fully priced in a 25-basis-point cut ahead of the meeting, as signs of labor-market weakness grew and concerns mounted that tariffs’ inflationary impact may prove temporary.
Related
Discover more from Vietnam Insider
Subscribe to get the latest posts sent to your email.
Source: Vietnam Insider