What to Expect From The Fed This Year After First Rate Cut in 2025

The Federal Reserve cut interest rates by 25 basis points for the first time since December on Wednesday, signaling concerns about a weakening labor market.

The Federal Open Market Committee voted to lower its target range to 4% to 4.25%, in line with investor expectations.

After the move, Fed Chair Jerome Powell said in a news conference that the unemployment rate remains low but job gains have slowed, “and downside risks to employment have risen at the same time, inflation has risen recently and remains somewhat elevated.”

A Growing Divide at The Fed

The decision was nearly unanimous, with only the new Fed governor, and Donald Trump’s pick for Powell’s successor, Stephen Miran, wanting a larger 0.5% cut.

“There is clearly a growing divide at the Fed over policy outlook,” reported the Kobeissi letter, which added that nine officials see two more cuts in 2025 while six officials see none.

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GDP growth slowed to around 1.5% in the first half of 2025, down from 2.5% last year, which “largely reflects a slowdown in consumer spending,” said Powell. The housing sector also remains weak, but this could be due to high interest rates impacting borrowing.

“The decision to cut was all about guarding against downside risks to the job market, so the October decision will once again come down to which way the incoming labor market data break,” said Michael Pearce, deputy chief US economist at Oxford Economics.

CME futures markets currently predict an 87.7% probability of a further 0.25% rate cut at the Fed’s next meeting on October 29.

“We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored,” Powell concluded.

US inflation is above the Fed target at 2.9%, and has been rising for the past four consecutive months. It has not been at or below 2% since February 2021.

Crypto Market Reaction

There was little reaction on crypto markets as the rate cut had been priced in.

Bitcoin jumped toward $118,000 during early trading in Asia on Thursday but had retreated slightly to $117,500 at the time of writing.

Ethereum was performing better with a 3% daily gain to take the asset above $4,600. The altcoins were generally in the green with slightly larger moves for Solana, Dogecoin, Cardano, Hyperliquid, and Avalanche.

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