Fed Signals Two More Cuts This Year After Lowering Rate by 25 Basis Points

The Federal Open Market Committee signaled two more rate cuts by the end of the year after lowering the target range for the federal funds rate by 25 basis points, citing slowing job gains and unemployment rate that "has edged up," even as they remain low.

Policymakers' median outlook released by the Fed shows the rate at 3.6% by the end of the year, down from the 3.9% seen in June. The pace of reduction was expected to slow to 3.4% by the end of next year, implying about a quarter percentage point cut in 2026 and a similar amount the year after that, according to the summary of economic projections released at the end of a two-day meeting of the FOMC.

The outlook for next year was higher than what many on Wall Street were expecting. The CME FedWatch tool was pricing in a 28.1% probability that the target range could be at 2.75% to 3% by December 2026. The $S&P 500 Index (.SPX.US)$ was little changed at 6,608.57 after rising as much as 0.3% earlier.

The fed funds target range was lowered to a range of 4% to 4.25% at the end of a two day meeting in Washington.

"In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate," the FOMC said in a statement. "In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

Source: Federal Reserve

The statement echoed Federal Reserve Chairman Jerome Powell's statement about a month ago when he said "the balance of risks appears to be shifting," amid signs of downside risks to employment.

Earlier this month, preliminary data from the Bureau of Labor Statistics showed that the labor market created 911,000 fewer jobs in the year through March 2025. The downward revision surpassed last year's adjustment which was the largest on record going back more than two decades, according to a CNBC report.

Trump appointee Stephen Miran, the newest member of the Fed board of governors, voted against the FOMC decision, preferring instead a 50 basis point reduction. Michelle Bowman, the Fed vice chair for supervision voted with Powell, John C. Williams, Michael S. Barr, Susan M. Collins, Lisa D. Cook, Austan D. Goolsbee, Philip N. Jefferson, Alberto G. Musalem, Jeffrey R. Schmid; and Christopher J. Waller in favor of the 25 basis point cut.

Before the decision, traders were pricing in near certainty that the Fed will announce a 25 basis point cut in target range for the federal funds rate.

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