News
On September 17, 2025, the U.S. Federal Reserve (Fed) announced a 0.25% (25 basis points) interest rate cut, setting the federal funds target range at 4.00%–4.25%.
This is the first rate cut since December 2024, reflecting concerns over a weakening labor market, including a rising unemployment rate.
The Fed’s statement also hinted at the possibility of further cuts, suggesting that additional reductions may be discussed in October and December.
However, Fed Governor Stefan Miran dissented, voting in favor of a larger 0.5% cut.
Source: Reuters｜Fed lowers interest rates, signals more cuts ahead; Miran dissents (Sept 17, 2025)
Supplement｜Background and Key Concepts Behind the Rate Cut
Why Does the Fed Cut Rates?
A rate cut means the central bank—in this case, the Fed—lowers its policy interest rate.
When interest rates go down, borrowing becomes cheaper for households and businesses. This makes mortgages, car loans, and corporate loans more affordable, encouraging people to spend and invest, which in turn stimulates the economy.
Conversely, when rates rise, borrowing slows, the economy cools, and inflationary pressures are reduced. In short, interest rates act like a thermostat, heating up or cooling down the economy.
What Is the Policy Interest Rate?
The policy rate is the benchmark interest rate set by the central bank to guide monetary policy.
In the U.S., this is the Federal Funds Rate, which is the rate banks charge each other for very short-term (overnight) loans. By adjusting this rate, the Fed influences a wide range of borrowing costs—from mortgages and corporate loans to credit card interest rates—throughout the economy.
Context and Purpose of the September Cut
In September 2025, the Fed cut its policy rate by 0.25%. This was the first cut of the year, driven by:
- Signs of slowing U.S. economic growth
- Weakening labor market conditions
- Cooling inflation compared to previous highs
The Fed has signaled the likelihood of two additional cuts before year-end, aiming to support growth while preventing a sharp downturn—often referred to as a “soft landing.”
However, rate cuts carry risks: they can reignite inflation or fuel asset bubbles in stocks, housing, or crypto markets. For this reason, the move remains controversial among investors and policymakers.
Overseas Reactions
The Federal Reserve cut interest rates, what should we be doing during this time? Asking a new investor. Just started a brokerage account 1 month ago. But have had a 401k through employer for last 7.5 years. Is there a way we can take advantage of these cuts or does this news hurt us?
Nothing changes. Continue to buy monthly
This rate cut was entirely expected, so there is really nothing to do about it now. What you will realize while investing is that the market prices in the probability of rate cuts or hikes.
The rate cut was. The dot plot wasn’t as certain.
The sheer amount of people who are not understanding this simple fact is mindblowing, honestly.
I’m among them. Point me in a direction that educates me like a 15 year old.
My favorite quote I heard today was “if we draw this out, we might need a bigger piece of paper”. In other words, the dot plot, which is where people think the economy and rates are going, are really spread out. Trump’s newest minion wants 5 rate cuts and someone I believe thinks there might be a raise. Uncertainty isn’t great for markets, but for people investing off the White House, they’ll probably make a killing.
But the dot plot was pretty damn dovish. Yet the market pivoted to a loss as soon as Powell mentioned the weakening labor market (which we already knew). Wtf
I don’t believe in “markets priced in” narrative anymore. Trump sneezes and market will jump 10%
You don’t have to believe it to make it true. You can literally see the markets priced in future interest rates at any time.
Always buy as much as you can as often as you can. Complicating it beyond that is likely to lose you money. Broad index funds.
Watch the spread bt short term yields and high yield corporate bonds. The closer they get the less investable the market becomes.
Honestly, for most everyday investors, a Fed rate cut isn’t something you need to make a big move on right away. Lower rates usually mean: Borrowing gets cheaper (mortgages, car loans, business loans). Savings accounts/CDs pay less. Stocks often get a short-term boost because cheaper money = more spending/investing. Since you’ve already got a 401k and just opened a brokerage account, the best play is usually to stay consistent with your contributions and focus on the long term. Rate cuts are just one of many factors that move markets, and nobody nails timing them perfectly. If you’ve got high-interest debt, this could be a good time to look at refinancing or paying it down faster. Otherwise, keep dollar-cost averaging, stay diversified, and don’t overthink one Fed move. Think of it like a tailwind, not a signal to suddenly change your whole investing plan.
In a brokerage account you won’t really be able to take advantage of the rate cuts without tax consequences because most of the benefits will be seen in things like ETFs that earn income through mortgage loans and maybe investment grade bonds. Treasury ETFs like TLT should see an upward trend but these are most beneficial in IRAs.
Every major rate cut associated with a recessionary phase, starting from next day after rate cut. This happened in 2000 and 2008. People may think “This time different” will later realize the facts. I am with bonds and golds, came out of market now.
Don’t listen to the noise just keep plugging.
Keep putting money in your investments, liquid accounts, HYSA, Money Markets, etc.
I’m holding onto my gold and glad that my bonds holdings are actively managed.
Okay so, if history repeats, this is going to create a decrease in short-term bond rates and increase long-duration bond rates. Short term because the Fed is directly bailing it out, but long term because of the inflation fears that causes. In that scenario, the winner is banks. They borrow short duration to lend long duration and profit from the spread.
Lol – time in the market is better than timing the market
Stay the course
Oh guys, I only have 400.00 invested in my brokerage lol. I’m not worried about losing that, I’m more asking if we should be buying more right now and when there’s more tax rate cuts possibly this year.
It doesn’t do much other than make it slightly cheaper to borrow for a house … other than that not a huge difference in your day to day
The 5 year and 10 year and 30 year went up so no the only thing that went down is money market accounts and savings accounts. Rate cuts don’t mean anything for long end unless the bond market says ok.
Buy the dip and get your money in.
This isn’t a dip!
Doesn’t matter. Get your money into the market. Time in is better than timing.
DCA
I wonder how bond market will react medium term. Perhaps bonds can go on a big bull run.
Well, go back and research what the market typically does during 1 year after the 1st rate cut in what is presumably a series of rate cuts and then position yourself accordingly. That’s what I’d do.
They cut rates 3 times at the end of 2024. So you don’t have to look far to learn that lesson.
Refinance your house.
We shall see… I like higher quality companies so the cut wasn’t going to make the companies I own jump jump per se… again the fed can only control the short term overnight lending… the long end can go up if bond investors wants more interest per risk… who knows… after all this the ten or 20 or 30 can shoot upward…
This cut has been priced in for a long time. Watch the CME Fed watch futures for indications on what the market thinks the Fed will do every 3 weeks. It’s those changes that move the market.
Markets were fairly neutral because JPow said it was a risk reduction cut. Plus cuts have already been priced in. 25 bps was hardly a return to free money days.
Pull all your cash equivalent money from high-yield savings accounts and money market accounts and put it in Certificates of Deposits because within a year or two, the savings interest rates will be about 1%.
Since we are in an elevated inflation period which will likely get worse, your best bet is assets. Or lose the real value of money from inflation.
I really wish they hadn’t. We would have been much better off to hold until unemployment toppled 5 or even 6%.
Dca as usual.
Deleverage. If you’re in stocks or indices that are overvalued (IMO over price/earnings of 20), divest or at least underweight. Shift to industries that have had growing earnings independent of the US market, like precious metal miners, or which are undervalued compared to historical norms, like energy stocks. Look overseas to which markets have low correlation to the US markets and are currently undervalued. Look at past cycles of Fed rate cuts. They give advance notice of US recessions, and declines in US stock valuations
Nothing. The Fed hasn’t acted in unexpected ways in as long as I can remember, I’m 40. So the move they made was already priced into the market. This means if you’re trying to react after the fact, you’re too late and whatever you do will hurt your position. Hell they also announced two more expected cuts before the end of the year and you’re probably already too late to trade on that information too.
Just keep doing what you’ve been doing. Nothing really changes.
Glossary of Terms
Dot Plot
A chart published several times a year by the Federal Reserve, showing each Board member’s and regional Fed president’s projection for future policy rates as individual dots. If the dots trend downward, it suggests an expectation of rate cuts; if they trend upward, it signals rate hikes. Markets closely watch the dot plot to gauge the Fed’s future policy direction.
Dovish / Hawkish
Terms describing a policymaker’s stance on monetary policy.
- Dovish: Focused on supporting growth and employment, generally favoring rate cuts.
- Hawkish: Focused on containing inflation, generally favoring rate hikes.
When comments say the “dot plot was dovish,” it means the projections for future interest rates were lower than expected.
Spread
The difference in yields between two types of bonds or financial instruments. For example, if the spread between short-term government bond yields and high-yield corporate bond yields narrows, it suggests investors are not being adequately compensated for risk, making the market less attractive.
Dollar-Cost Averaging (DCA)
An investment method where a fixed amount of money is invested regularly (e.g., monthly). More shares are bought when prices are low and fewer when prices are high, which helps smooth out the average purchase price over the long term.
CME FedWatch Tool
A data tool provided by the Chicago Mercantile Exchange (CME). It uses futures market pricing to quantify investors’ expectations for the Fed’s policy rate. It is widely used to gauge how much the market has priced in future rate hikes or cuts.
Risk Reduction Cut
A rate cut carried out preemptively to prevent an economic downturn or financial instability before it worsens. Unlike a stimulus cut, its main purpose is to prevent deterioration. If markets expect too much from such a move, disappointment may follow.
Soft Landing
A scenario in which inflation is contained and the economy is stabilized without slipping into a recession. This is the Fed’s ideal outcome, but historically, successful examples have been rare.
The Impact of the Fed’s Rate Cut on the U.S. Economy and Global Markets
From Inflation Control to Economic Support
Since 2022, the Federal Reserve has pursued an aggressive cycle of rate hikes to curb inflation. However, inflationary pressures have eased recently, while signs of weakening in the labor market have become more pronounced. This latest rate cut represents a strategic shift toward achieving a “soft landing” — supporting the economy without overheating it or tipping it into a severe downturn. That said, rate cuts also carry the risk of reigniting inflation, so caution in the markets remains high.
Miran’s Push for a 0.5% Cut and Its Implications
One of the most notable developments at this meeting was the dissenting vote by newly appointed Fed Governor Stefan Miran, who argued for a more aggressive 0.5% rate cut. Analysts believe his stance reflects not only economic considerations but also political calculations.
Some observers suggest Miran may be positioning himself as a strong contender for the Fed Chair role after Powell, signaling a more dovish stance at a time when President Trump is openly calling for steeper rate cuts. This move has raised concerns about the Fed’s independence, as it risks intertwining monetary policy with political agendas, potentially fueling side effects such as rising long-term interest rates.
Investor Sentiment and Bubble Risks
For over a decade, markets have grown accustomed to the pattern of “Fed easing = stock gains.” If this mindset becomes too entrenched, it could lead to excessive risk-taking and bubbles in equities, cryptocurrencies, and other risk assets. While rate cuts act as a tailwind for growth, the challenge now is how to restrain the unintended side effects.
Conclusion
The Fed’s recent rate cut represents both a tactical adjustment to slowing economic momentum and a decision shaped by political dynamics and market psychology. Miran’s push for a 0.5% cut is widely seen as more than just an economic judgment — it may also be a strategic move to strengthen his candidacy for the post-Powell era, further fueling concerns about the Fed’s independence.
At the same time, continued rate cuts risk deepening investor complacency, inflating bubbles in risk assets, and undermining confidence in the central bank. This decision, while aimed at supporting growth, simultaneously carries the risks of renewed inflation, asset bubbles, and declining trust in the Fed.
Going forward, the critical challenge for both the U.S. economy and global markets will be balancing sustainable stability with maintaining confidence in monetary policy.
Stay tuned for more insights in our next article.
References
- AP News｜Fed makes first rate cut of 2025, citing slowing job market and cooling inflation
- Reuters｜Fed delivers first rate cut of 2025, signals two more this year
- Bloomberg｜Powell Cuts Rates as Fed Shifts Focus to Supporting Growth
- CNBC｜Fed cuts rates by quarter point, first reduction since 2020
- Federal Reserve｜What is the federal funds rate? (FRB公式解説)
- CME FedWatch Tool｜Market expectations for Fed rate decisions
