(qlmbusinessnews.com . Thu 30th Oct, 2025) London, UK —
US Federal Reserve Cuts Benchmark Rate to 3.75%-4%, Eyes on Faltering Employment
The Bank of England moved forward with an interest rate reduction, signalling a greater focus on the faltering job market over inflation concerns.
This decision came despite the ongoing government shutdown in the US, which is approaching its one-month milestone and has resulted in a delay in crucial job market data, leaving policymakers to make decisions in the dark, according to experts.
On Wednesday, the Federal Reserve announced a 0.25 percentage point cut to its benchmark interest rate, now setting it between 3.75% and 4%.
This action arrives after a similar rate reduction last month, the first since the previous December. Although economists predicted this could lead to further rate cuts, the current absence of data has made future reductions' paths uncertain.
The decision faced resistance from two voting members of the Fed's committee. Stephen Miran, temporarily away from his role as a leader of President Trump's Council of Economic Advisers, advocated for a more significant cut of 0.5 percentage points. On the other hand, Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, favoured maintaining the current rate.
The Federal Reserve has now lowered its prime lending rate to the lowest it's been in three years, easing borrowing costs across the country.
The rate cuts resumed in September due to a deceleration in job hiring. The Federal Reserve underlined on Wednesday that job creation has slowed throughout the year, with the unemployment rate, despite being low until the end of summer, has started to increase slightly.
Jerome Powell, the Chair of the Federal Reserve, described the employment market as “less dynamic and somewhat softer” at a press conference, pointing to reduced immigration as one contributing factor. However, he reassured that the downturn in the job market doesn't seem to be intensifying.
The government shutdown has, however, halted the publication of September's monthly jobs report, limiting the central bank's insight into the labour market's current state since their last meeting.
Private sector assessments hint at a continued trend of slow hiring, with the US economy shedding 32,000 jobs in September, according to ADP.
Last week, the Labor Department published inflation figures for September, revealing a 3% year-over-year increase, slightly under economists' expectations. This has further supported the decision to reduce borrowing costs again.
Earlier this year, concerns over inflation, spurred by President Trump’s comprehensive tariffs on major trading partners, dominated. Although inflation exceeds the Fed's 2% target, the impact of tariffs on consumer prices has been less severe than feared, allowing a shift in focus towards invigorating the job market, noted Bank of America economists.
Powell expressed optimism that tariffs would result only in one-time price increases for specific consumer goods, with inflation largely staying close to the 2% objective.
Furthermore, the Federal Reserve announced an end to its balance sheet shrinking on 1 December, halting the unwinding of government and mortgage-backed securities acquired during crises to stimulate the economy and reduce interest rates.
While Wall Street anticipated another quarter-point interest rate cut in December, Powell emphasized that such expectations should not be seen as guaranteed, indicating a potentially slower pace for future adjustments.
With the possibility of new job reports and the ongoing government shutdown impacting data availability, the course of action for the year's end remains undecided. Powell highlighted the necessity to adapt cautiously in uncertain conditions and stressed the Fed's reliance on incoming economic data amidst varied opinions within its committee.
Amid continuous calls from President Trump for lower rates, Powell faces significant pressure, coinciding with Trump's hints at potentially replacing him before his term concludes next May.
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