The US Federal Reserve has announced a 25-basis-point reduction in the federal funds rate, pointing to increasing vulnerabilities in the labour market and a slower economic momentum. The move—from 3.75%–4% to 3.50%–3.75%—was confirmed after the latest meeting of the Jerome Powell–led Federal Open Market Committee (FOMC) on Wednesday.

In its official communication, the Fed noted that available indicators show the US economy has continued to expand, but only “at a moderate pace.” The Committee acknowledged that “Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments.”

Inflation Still Elevated and Outlook Uncertain

Although inflation had cooled earlier, the US Federal Reserve cautioned that price pressures have climbed again and still remain higher than preferred levels. It emphasised that uncertainty around the broader economic outlook remains elevated, with risks affecting both sides of its dual mandate—employment and inflation.

The central bank reaffirmed that it is closely monitoring maximum employment and a return to 2% inflation, noting that “downside risks to employment have risen in recent months.”

Why the Rate Cut Was Necessary

Given the shifting risk balance, the FOMC decided that easing the rate corridor by 25 bps was the appropriate step to support economic stability. The Committee said it will continue evaluating:

• Latest economic indicators

• Shifts in inflation and labour market dynamics

• Global and domestic financial conditions

• Potential threats to growth

The Fed reiterated its readiness to alter monetary policy further if new risks materialise that threaten progress toward its long-term goals.

Fed Signals Data-Dependent Path Going Forward

In its policy assessment, the Committee said future decisions will factor in a broad range of indicators, such as labour market strength, inflation expectations, and international developments. It will also review the implications of evolving data trends and stands prepared to adjust policy if conditions deteriorate.

The central bank affirmed its strong commitment to returning inflation to 2% while ensuring that conditions remain supportive of maximum employment.

Conclusion

The Federal Reserve’s 25 bps rate cut underscores growing concerns about the US job market and rising uncertainties across the economy. With inflation still above target and unemployment gradually rising, the Fed has adopted a more cautious stance while signalling a continued dependence on real-time data. As the economic landscape evolves, future rate decisions will hinge on how inflation, employment, global risks, and growth indicators unfold in the months ahead.