US Federal Reserve Lowers Interest Rate Amid Slowing Growth and Rising Risks

The U.S. Federal Reserve has lowered its key interest rate by a quarter percentage point amid signs of slowing economic activity and rising risks to the job market. The Federal Open Market Committee (FOMC) announced on September 17, 2025, that the target range for the federal funds rate has been reduced to 4.0%–4.25%.

Reasons for the Decrease in Interest Rate

Recent data show that economic growth has moderated in the first half of the year. Job gains have slowed, unemployment has edged up (though it remains low), and inflation has risen slightly, staying above the Fed’s 2% target. The Committee said uncertainty about the outlook remains high and that risks to employment have increased.

The Fed emphasized its dual mandate of supporting maximum employment and bringing inflation back to 2% over the long run.

Implementation Details

To put this decision into practice, the Fed announced a set of operational measures effective September 18, 2025:

• Interest on reserves: The Board of Governors lowered the rate paid on reserve balances to 4.15%.
• Repo operations: Overnight repurchase agreements will be conducted at a minimum bid rate of 4.25%, with a total cap of $500 billion.
• Reverse repos: Overnight reverse repo operations will be offered at 4.0%, with a per-counterparty limit of $160 billion per day.
• Treasury securities: The Fed will roll over maturing Treasury principal beyond a cap of $5 billion per month. It will redeem coupon securities up to that cap and use Treasury bills if needed.
• Agency debt and mortgage-backed securities (MBS): Principal payments above $35 billion per month will be reinvested into Treasury securities, matching the maturity profile of Treasuries.
• The Fed noted small operational adjustments may occur if needed.

In a related action, the Board of Governors also lowered the primary credit rate (the rate at which banks borrow directly from the Fed) by 0.25 percentage points to 4.25%. This was approved by the boards of directors of 10 regional Federal Reserve Banks.

Future Approach

The Committee said it will continue reducing its holdings of Treasuries and mortgage-backed securities while monitoring new data closely. Future policy moves will depend on economic conditions, especially the labor market, inflation pressures, financial stability, and global developments. The Fed also reiterated its strong commitment to supporting jobs and restoring inflation to 2 percent.

How many members voted in Favour?

The rate cut was supported by Chair Jerome Powell, Vice Chair John Williams, and nine other members. Stephen I. Miran voted against, preferring a larger 0.5 percentage point cut.

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