The Federal Reserve lowered the federal funds target range by a quarter point to 4.00% to 4.25% on Wednesday, citing a shift in risks toward the job market.
Officials said they will judge any further moves against incoming data and the evolving outlook, while continuing to monitor inflation that remains above the 2% goal.
Governor Stephen I, Miran dissented in favor of a larger half-point reduction, while Chair Jerome Powell and 10 other voters backed the 25 basis point step.
The statement emphasized that unemployment has edged higher and that downside risks to employment have increased, a notable recalibration of the Fed’s risk assessment.
New projections released alongside the decision outline a shallow easing path. The median participant sees the policy rate near 3.6% at the end of 2025, 3.4% in 2026, and 3.1% in both 2027 and 2028.
The longer-run estimate stays at 3.0%. The same forecast set has real GDP growth at a 1.6% pace this year, the unemployment rate at 4.5% in the fourth quarter, and headline PCE inflation at 3.0% before easing in 2026.
New projections released alongside the decision outline a shallow easing path. The median participant sees the policy rate near 3.6% at the end of 2025, 3.4% in 2026, and 3.1% in both 2027 and 2028. The longer-run estimate stays at 3.0%.
The same forecast set has real GDP growth at a 1.6% pace this year, the unemployment rate at 4.5% in the fourth quarter, and headline PCE inflation at 3.0% before easing in 2026.
Nonfarm payrolls rose by only 22,000 in August, and the unemployment rate held at 4.3%. Consumer prices increased 0.4% on the month and 2.9% from a year earlier in August, with core CPI up 3.1% year over year. Taken together, the figures point to slower hiring and inflation that is still above target, but not accelerating.
The implementation details set the operating floor and ceiling for money markets. Effective September 18, the interest on reserve balances is 4.15%.
The standing overnight reverse repo rate is 4.00% with a per-counterparty limit of $160 billion, and the standing repo facility’s minimum bid rate is 4.25% with an aggregate cap of $500 billion. The Board also lowered the primary credit rate to 4.25%.
The Fed will roll over any monthly Treasury principal payments that exceed a $5 billion cap, and it will reinvest agency MBS principal received above a $35 billion cap into Treasuries, keeping total holdings on a gradual declining path while the policy rate does the heavy lifting.
The dots imply around two more quarter-point cuts by December, but the committee left itself latitude to pause if inflation proves sticky or to accelerate if the labor backdrop deteriorates.
The funds rate still above the longer-run estimate, policy remains restrictive in real terms, which argues for a selective approach in risk assets and an eye on duration as yields respond to each inflation and jobs report.
