Fed Cuts Rates by 25 bps To 4.1%, Signals More Easing in 2025

New Delhi, September 18, 2025: The US Federal Reserve has announced that it has reduced the Fed rate by 25 bps (basis point) to 4.1%, from the previous 4.3%. The Federal Reserve has also hinted that there may be two more rate cuts by the end of this year and one in 2026. The main driving factor behind the rate cut is the shift of attention from the inflation pressures to the increasing risks in the US labour market. Although inflation in August stood at 2.9%, higher than the target of 2%, the Federal Reserve is focussing more on the slowed hiring and the increasing unemployment.

Powell Stresses Employment Risks

While announcing the rate cut, Fed Chair Jerome Powell said that he believes the downside risks to jobs have sharply increased in the softer labour market. He suggested that growth and hiring will be supported by lower borrowing costs for mortgages, auto loans, and business credit. However, the rate cut is being taken as unsatisfactory, as markets expected a more aggressive rate cut.

Little Support For A Higher Rate Cut

American economist, Stephen Miran said that the rate cut was not justified and that the 25 bps rate cut must have been around 50 bps. However, Powell responded by saying that there is very little support for such an aggressive rate cut at this point, and the committee thought differently.

The Fed’s move is contradictory to measures taken by other major central banks regarding rate cuts. The European Central Bank kept its rate unchanged last week, while the Bank of England is also expected to keep it unchanged as UK inflation remains elevated at 3.8%.

Mixed Affect Expected on India

When the US Fed cuts rates, it usually helps India because foreign investors bring more money into Indian stocks and bonds, and borrowing costs go down. The rupee may also get stronger. But there is a risk too as global commodity prices like oil may rise, which can increase India’s import bill and inflation. It remains to be seen how the investors take the news and how it affects their sentiments today as the market prepares to open.

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