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MUMBAI – The US Federal Open Market Committee on Wednesday voted to reduce the federal funds target rate range by 25 basis points to 4.00-4.25%, after keeping it unchanged for five consecutive meetings. All members of the committee voted for a 25-bps cut, except Stephen I. Miran, who voted to reduce the rate by 50 bps. 

 

The 25-bps cut was widely expected by the market and was a first by the committee in 2025 after it reduced the policy rate target range by 100 basis points between September and December 2024. In the statement of economic projections, the US Federal Reserve officials guided for the federal funds target rate to be at 3.50-3.75% by the end of this year, which is 50 bps lower than the current rate.

 

The statement of economic projections showed seven of the 19 meeting participants expect no further rate reductions this year, while two more see only one more cut. The statement reiterated FOMC's comments from July suggesting that growth of economic activity in the US moderated in the first half of the year. 

 

The committee judged that downside risks to employment have risen. The non-farm payrolls data released on Sept. 5 showed that the US added only 22,000 jobs in August, well below the consensus estimate of 75,000 job additions. The unemployment rate also rose to 4.3% from 4.2% in July. 

 

According to the statement, "The committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective." However, it did acknowledge that "inflation has moved up and remains somewhat elevated." In the prelude to the line announcing the rate cut, the statement also spoke about "the shift in the balance of risks.

 

Meanwhile, the median GDP growth was revised upwards to 1.6% annual growth on year in Oct-Dec from 1.4% previously. The estimate for 2026 was also revised upwards to 1.8%. In the labour market, the unemployment rate median projection was kept unchanged at 4.5% by December, and is seen settling at 4.4% at the end 2026 and at 4.3% at the end of 2027. The Fed's preferred inflation gauge, the core Personal Consumption Expenditures Price Index, is seen at 3.1% in Oct-Dec and remaining above the 2% target even by the end of 2027.

 

The committee will continue reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities, it said. 

 

Wednesday's decision comes against a backdrop of huge political pressure on the central bank from the US President Donald Trump, who has publicly berated the Federal Reserve Chair Jerome Powell for months for the central bank's hesitance to cut rates.  End

 

Reported by Kabir Sharma

Edited by Deepshikha Bhardwaj

 

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