18 Sep 2025: In a widely anticipated move, the U.S. Federal Reserve cut its benchmark interest rate by 25 basis points on September 17, 2025, lowering the target range to 4.00%-4.25%, marking its first rate cut since December 2024.
What Fed Announced & Why
- The Fed’s Federal Open Market Committee (FOMC) cited signs of moderation in economic growth and job gains. While inflation remains above target, the labor market shows increasing signs of slack.
- Alongside the rate cut, Fed projections (often called the “dot plot”) signal that officials foresee two more rate cuts before year-end 2025, though they are probabilities, not promises, depending heavily on economic data.
- Fed Chair Jerome Powell emphasized that the decision is data-driven: any further adjustments will depend on incoming indicators such as inflation, hiring, wages, and downside risks.
Political Context
- The decision took place during Donald Trump’s presidency, amid criticism from him and his advisers that the Fed has been too slow in cutting rates. Trump has repeatedly pushed for looser policy.
- One dissenting vote came from Stephen Miran, a Trump-appointed Fed Governor, who argued for a more aggressive cut—a half-percentage-point reduction instead of just 25 bps.
Impacts & Reactions
On U.S. Economy
- The Fed is trying to counteract weakening job growth: recent employment reports show payroll creation slowing, unemployment creeping up modestly, and underemployment issues especially among younger workers and minority communities.
- Inflation is still above the Fed’s long-run target of around 2%. That remains a concern. The Fed’s projections show inflation easing gradually but not immediately hitting target.
On Global & Indian Markets
- In India, analysts expect the rate cut to be a net positive for equities, especially export-oriented sectors (like IT), foreign capital inflows, and a possibly softer U.S. dollar helping margin and profit translation.
- The rupee depreciated slightly after the announcement as the dollar saw mixed demand, but the move also helped renew risk appetite in Indian markets.
- Sensex and Nifty50, India’s benchmark indices, rallied post-announcement. Sectors tied to global demand, banks, and technology saw gains as expectations build around easier global financial conditions.
Caveats & Risks
- Despite projections for two more rate cuts, Fed officials emphasized uncertainty. If inflation accelerates, or if labor market deterioration becomes too sharp, the Fed might hold off or adjust its path.
- Some of the positive effects (e.g. global liquidity inflows) may be already priced in by markets, reducing the margin for further surprise gains.
- Currency risks remain for emerging markets. A weaker rupee can help exporters, but also increase import costs and inflation domestically.
What to Watch Next
- Upcoming U.S. data: non-farm payrolls, unemployment rate, consumer price index (CPI) / personal consumption expenditures (PCE) inflation. These will be key triggers for whether Fed follows through with the additional cuts.
- How markets price in the Fed’s future path: bond yields, Treasury curves, dollar index movements.
- Reaction in India: how RBI and financial regulators respond; whether domestic interest rates, inflation, or capital flows shift materially.
City-Level (India) Angle
In Mumbai, Delhi, Bengaluru and other metro centres, investors and finance professionals are closely tracking how foreign institutional investors (FIIs) respond. Analysts in Mumbai expect sectors like information technology, pharmaceuticals, and gems & jewellery to benefit due to weaker dollar and improved margins. Delhi-based importers fear cost increases if rupee pressure continues, especially for raw materials. Bengaluru’s startup community, which frequently looks to international capital, sees the Fed move as a potential tailwind. Real estate and consumer credit markets in cities may benefit modestly if global financing becomes easier and interest rate spreads narrow.
Summary
Fed cuts rate by 25 bps, signals two more in 2025 amid slowing jobs and growth; markets positive, India sees upside in IT, exports, foreign inflows.