The Federal Reserve said on the 17th that they’re lowering the target for the federal funds rate by 0.25%, bringing it to a range of 4.00% to 4.25%. This is their first rate cut in 2025, and the first one since they made three cuts last year.
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Li Fuyi, an Associate Research Fellow at the China Macroeconomic Research Institute’s Institute of Foreign Economics, mentioned: “The Fed’s recent interest rate cut is the first since 2025. It’s a move made during a really complicated time, with all sorts of factors at play: the Fed’s own situation, what's going on in the U.S., and what's happening around the world.”
He also pointed out that politically, the Fed’s independence is being tested more than ever before. The White House has been more involved in influencing the Fed's decisions, which is pretty unusual in history.
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The U.S. economy has been quite unpredictable this year. Although there was a bounce in GDP during the second quarter, most of that was due to a "data boost" caused by fewer imports, not real growth in how much people and businesses are spending locally. Tariffs act like taxes, which tend to slow down consumer and business activity—so they’ve been holding back demand. The job market is slowing down too; for the first time in five years, the country actually lost jobs in June instead of adding them. On the price front, since importers mostly absorbed the tariffs, and some tariffs have been phased in or waived on certain goods, overall inflation has stayed fairly mild.
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The U.S. Consumer Price Index (CPI) went up by 2.9% in August compared to last year, which is relatively high lately. But it’s still early to see the full impact of any price hikes from tariffs. When looking at the bigger picture, there are still a lot of uncertainties around the U.S.'s tariff plans and trade talks moving forward.
After the recent interest rate cut, if things stay pretty stable without big surprises or policy shifts, there’s a chance we could see more rate cuts before the year ends. And possibly even a few more could happen next year.
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Right now, the Federal Reserve is still in control of how and when to cut interest rates. They’re likely to take a cautious approach, maybe gradual cuts while keeping an eye on how things are going. The main reason for lowering rates is because, after the U.S. put tariffs on many countries in August, things like commodity prices and logistics costs are expected to go up. Also, they want to leave room to cut rates further if needed, without causing prices to spike too quickly later on.
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