On September 17, 2025, the Federal Open Market Committee (FOMC) announced a widely expected decision to cut interest rates by 25 basis points, bringing its benchmark rate down to the 4.00–4.25% range. This marks the first step in a gradual easing of monetary policy after a long period of restrictive measures aimed at controlling inflation.
Gold reation to the rate cut report (5m timeframe, Trendo Trading Platform)
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Federal Reserve Economic Outlook | Rate Cuts and U.S. Growth Prospects
Alongside this decision, the Federal Reserve released its Summary of Economic Projections, painting a more optimistic picture of the U.S. economic outlook.
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GDP Growth: The forecast for 2025 was revised upward from 1.4% to 1.6%. Growth is also projected to continue in 2026 and 2027, reflecting policymakers’ stronger confidence in the resilience of the economy.
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Unemployment Rate: Forecasts for the coming years were adjusted slightly lower than the previous report — 4.4% in 2026 and 4.3% in 2027.
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Inflation (PCE): The 2025 estimate remains unchanged at 3%, while 2026 is now projected at 2.6%. This suggests the path toward the 2% target will be gradual.
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Interest Rates: The most significant shift concerns the interest rate trajectory. The year-end 2025 forecast was lowered from 3.9% to 3.6%, and projections for 2026 and 2027 were revised to 3.4% and 3.1%, respectively. This indicates that the pace of rate cuts will be faster than previously anticipated.
Learn more: The Impact of Federal Reserve Interest Rates on the Forex Market
Jerome Powell’s Remarks Following the September 17 Meeting
Federal Reserve Chair Jerome Powell emphasized during the post-meeting press conference that the decision was primarily a response to risks in the labor market. According to him, the rate cut can be seen as a form of “risk management easing”, given evident signs of weaker employment and declining labor demand.
Powell stated: “I can no longer say the labor market is strong.” He pointed to reduced immigration and a drop in labor force participation as key factors behind lower employment, adding: “Those on the margins of the labor market are now finding it harder to get jobs.”
However, Powell stressed that the Fed does not see a need for rapid rate cuts and that monetary policy is not locked into a pre-set path. He noted that inflation risks have eased, although trade tariffs could temporarily add upward pressure on prices.
Implications of the Rate Cut for Markets and the Economy
This move signals a gradual shift in the Fed’s balance between its two main goals: controlling inflation and supporting employment. Over the past two years, the primary focus had been on taming inflation, but rising labor market risks are now prompting a more balanced approach.
The economic projections indicate that policymakers are more optimistic about the economy’s resilience and view a modest pace of rate reductions as the most suitable course. This adjustment could provide a positive signal for stock and bond markets, as faster rate cuts mean lower financing costs and greater appeal for riskier assets.
That said, uncertainty remains around the inflation outlook and the effects of tariffs. Powell himself stressed that monetary policy decisions must continue to be made “meeting by meeting” based on incoming data.
Summary
The Fed’s decision to cut rates by 25 basis points marks a turning point in U.S. monetary policy. While modest in scale, this move, coupled with the shift in tone from policymakers, signals the start of a new phase in the policy cycle — one where employment concerns are given greater weight alongside inflation control.
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