WASHINGTON — Federal Reserve Chair Jerome Powell said Wednesday, Sept. 17, 2025, the central bank is cutting its benchmark interest rate by a quarter percentage point, citing a cooling labor market and rising downside risks to employment even as inflation remains above target.
The move lowers the federal funds rate to a range of 4% to 4.25%, the first reduction since December 2024. Powell said the Federal Open Market Committee also voted to continue reducing the Fed’s securities holdings.
“While the unemployment rate remains low, it has edged up. Job gains have slowed and downside risks to employment have risen,” Powell said at a press conference. “In support of our goals and in light of the shift in the balance of risks today, the committee decided to lower our policy interest rate by a quarter percentage point.”
Economic growth has moderated this year, with gross domestic product expanding at an annual pace of 1.5% in the first half of 2025, down from 2.5% last year. Payroll growth has slowed to just 29,000 jobs per month over the past three months, while the unemployment rate rose to 4.3% in August.
Inflation, meanwhile, remains above the Fed’s 2% goal. The central bank’s preferred PCE price index rose 2.7% in the past year, with core inflation at 2.9%. Powell said tariffs have contributed to higher goods prices but stressed that services inflation continues to ease.
The Fed’s updated projections show the median policy rate at 3.6% by the end of 2025, 3.4% in 2026, and 3.1% in 2027, each a quarter-point lower than in June.
“With downside risks to employment having increased, the balance of risks has shifted,” Powell said. “We judged it appropriate at this meeting to take another step toward a more neutral policy stance.”
Press Conference Exchanges
Powell fielded pointed questions on the Fed’s independence, inflation risks, and financial markets:
- Political independence: Chris Rugaber of the Associated Press asked whether new Fed Governor Steven Myron’s continued White House role compromises the central bank’s independence. Powell replied the committee remains “united in pursuing our mandate” and “strongly committed to maintaining independence.”
- Why cut rates with inflation still high? Nick Timiraos of The Wall Street Journal pressed Powell on whether conditions still justify a restrictive stance. Powell called the decision a “risk management cut,” arguing that slower job creation signals “the balance of risks has shifted.”
- Tariffs and jobs: Follow-ups from Rugaber and others focused on whether tariffs are fueling inflation and weakening employment. Powell acknowledged tariffs are contributing to higher goods prices but stressed the labor market slowdown is “much more about the change in immigration.”
- Housing affordability: Nicole Goodkind of Barron’s asked whether high rates are worsening the housing shortage. Powell said lower mortgage costs should gradually ease affordability pressures, but added the deeper problem is a nationwide housing shortfall beyond the Fed’s control.
- Market bubble concerns: Matt Egan of CNN questioned whether cutting rates with stocks near record highs risks fueling a bubble. Powell responded that the Fed is “tightly focused on maximum employment and price stability” while continuing to monitor financial stability.
Powell closed by reiterating the Fed’s dual mandate: “We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer-term expectations well anchored.”
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