On September 17th, the Federal Open Market Committee finally trimmed its benchmark lending rate by 0.25%, bringing the target range to 4.00%–4.25%. It’s the Fed’s first cut since December 2023, and typically, a rate cut signals that policymakers are bracing for softer growth and cooler consumer spending. But with inflation still “running hot,” why are they easing?
Why the Cut, Despite Hot Inflation?
Jerome Powell and his colleagues framed the move as a response to a moderation in economic activity rather than a victory over price pressures.
- “Moderation in growth” has shown up in slower GDP and consumer data.
- Retail sales and durable-goods orders are cooling after a pandemic-fueled boom.
- Inflation remains above the Fed’s 2% goal, but momentum is fading.
Powell made it clear that balancing these dynamics means cutting rates—even if headline inflation stays elevated.
Two More Cuts Loom Before Year-End
Fed members project the federal funds rate will be another 50 basis points lower by December’s end. The market has zeroed in on 0.25% trims at the October and December meetings, which would bring the range down to 3.50%–3.75%. Behind those forecasts:
- A projected 1.6% GDP growth rate for 2025.
- An uptick in unemployment to 4.5%.
- Inflation still around 3.0%.
That trio of estimates suggests policymakers are planning for a softer economy but aren’t ready to declare victory over inflation just yet.
Housing Market: Stuck in Neutral
While the Fed moves rates, homebuyers and sellers are hitting pause. The Wall Street Journal observes a “state of paralysis”:
- Existing home sales have stagnated.
- New residential construction is slowing.
- Transaction volumes have collapsed.
With mortgage rates cresting over 7% earlier this year, neither side sees upside—the result is gridlock and longer listing times.
Markets React: Stocks Up, Tech Slips, Crypto Rallies
Equities and digital assets offered a mixed reception:
- The NYSE closed up 0.3% on the day.
- The NASDAQ slipped 0.33%, weighed down by rate-sensitive tech stocks.
- Bitcoin rose 1.0%, Ethereum gained 2.6%, and XRP jumped 2.9%.
Investors are pricing in a gentler Fed, which tends to buoy risk assets—though volatility could resurface if inflation reaccelerates.
As we eye the final two Fed meetings of 2025, the tug-of-war between growth, inflation, and financial stability will only intensify. Will rate cuts successfully thaw the economy without reigniting price pressures? Or is this the calm before a storm of market turbulence?
More to Explore
- Is the FED Getting Soft on Inflation?
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- Early Warning Signs of a Weakening Economy in July 2025
- Blue-Collar Wages Surge in 2025
