September 2025 Fed meeting: Interest rates slashed by 25 basis points, signaling policy shift
- The Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points at its September meeting, lowering the federal funds rate to a range of 4% to 4.25%.
- The Fed cited “a shift in the balance of risks” toward weakness in the labor market as a reason for lowering interest rates.
- One Fed governor voted in favor of a 50-basis-point cut, indicating continued dissent on the board.
- Our strategists expect further rate cuts later this year as economic data continues to soften.
The Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points in September, lowering the federal funds rate to a range of 4% to 4.25%. This marks the first rate cut since December 2024.
The move comes as the Fed continues to assess the impact of tariffs and other economic policies on key indicators such as inflation and the labor market. With economic growth moderating, the unemployment rate ticking up and inflation remaining above the Fed’s preferred 2% target, policymakers opted to prioritize the recent weakness in the labor market and lowered interest rates.
What did our strategists learn from the September Federal Open Market Committee (FOMC) announcement?
Just as our strategists anticipated, the Fed confirmed that it would take a more proactive approach to stem weakness in the labor market, rather than being overly concerned that tariff-driven price pressures will lead to a prolonged period of higher inflation.
As a result of the Fed’s revealed preference to support the labor market, our strategists still expect around 75 basis points of additional interest rate cuts over the coming year, unless the macro trajectory warrants additional easing.
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How did markets react to the interest rate cuts?
Markets had largely anticipated a rate cut in September, but the Fed’s cautious tone about future policy brought about mixed reactions. For example, the Dow Jones Industrial Average (DJIA) rose 3% immediately following the announcement before flattening, while the S&P 500 and Nasdaq Composite recorded small losses of 0.6% and 1%, respectively.
Additionally, U.S. Treasury yields declined after the FOMC meeting, further adding to the mixed reaction from markets.
Chair Jerome Powell cited the cut as largely a move of “risk management,” rather than the beginning of a bolder rate cutting cycle, which likely triggered this reaction.
What does the Fed’s announcement mean for investors?
The Fed’s decision to cut rates signals a shift in policy, but the path forward remains data-dependent. Our strategists expect the Fed to remain flexible, with additional cuts likely later this year as economic growth moderates. However, as Powell mentioned during his press conference, decisions will be made on a meeting-by-meeting basis as the Fed assesses the health of the labor market and incoming inflationary pressures.
Now that the Fed has once again begun a rate cutting cycle, it’s time to dust off the rate cutting playbook for investing.
Investors can prepare portfolios by:
- Locking in higher yields now: As the Fed cuts rates, yields on cash-like holdings, including savings accounts, certificates of deposit (CDs) and money market funds, are likely to decline. Consider locking in current higher yields with high-quality corporate or municipal bonds.
- Positioning for equity upside: U.S. stocks historically perform well during non-recessionary Fed cutting cycles, especially when the economy remains resilient. Lower rates can help push markets higher.
- Adding portfolio protection: To guard against risks like higher-than-expected inflation or market volatility, consider assets such as gold (a hedge against inflation) and derivatives that can be structured to provide downside protection, while also maintaining exposure to possible market upside.
The Fed shifting toward lower interest rates could have positive impacts on consumers, businesses and the economy.
As always, consult a J.P. Morgan advisor to learn how these developments could affect your investing portfolio.
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Editorial staff, J.P. Morgan Wealth Management
Global Investment Strategist
Head of Investment Strategy, J.P. Morgan Wealth Management
