The US Federal Reserve delivered its first rate cut of the year on Wednesday, trimming borrowing costs by 25 basis points to 4.25%. The move had been widely anticipated, but markets reacted strongly to fresh signals that policymakers plan to ease further in the months ahead.
Fed Chair Jerome Powell confirmed that the central bank expects two additional rate cuts before the end of 2025, suggesting a cut at each of the remaining meetings this year unless the economic outlook changes dramatically. This marks a more dovish stance than earlier guidance, when officials projected only two cuts in total. The shift is widely seen as a response to recent signs of labor market weakness, with hiring slowing sharply through the summer.
Looking further ahead, the Fed penciled in just one cut for 2026, consistent with earlier projections. Still, the near-term outlook has fueled volatility across markets, with the US dollar sliding on the news as traders adjusted positions to account for faster-than-expected easing.
The policy pivot comes as inflation pressures continue to moderate while growth shows early signs of strain. With Powell emphasizing that rates remain “modestly restrictive,” investors are bracing for more volatility as the Fed attempts to balance growth risks with its inflation mandate.
