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By Gabe Whisnant
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The Federal Reserve cut its benchmark interest rate Wednesday for the second time this year, lowering it to about 3.9% as policymakers try to bolster economic growth and hiring while inflation remains stubbornly above the central bank’s target.
“Job gains have slowed this year, and the unemployment rate has edged up but remained low through August,” the Fed said in a statement.
Why It Matters
The decision underscores the Fed’s delicate balancing act as it attempts to support a slowing economy without reigniting price pressures — and to do so with limited economic data because of the ongoing government shutdown.
Read More on Politics
The government has not issued official employment figures since then due to the shutdown, forcing the Fed to rely on private-sector data and market indicators to guide its policy. The central bank’s rate had reached roughly 5.3% in 2023 and 2024, the highest in more than two decades, as officials fought to contain the worst inflation spike in 40 years.
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What To Know
The new rate cut — down from 4.1% — could eventually lower borrowing costs for mortgages, auto loans, credit cards and business lending, though the effects are likely to take time. Fed Chair Jerome Powell told reporters after the announcement that officials had “strongly differing views” on whether to make another cut when they meet in December. “A further reduction in rates is not a foregone conclusion,” he said.
The Fed also announced it would halt its ongoing effort to shrink its $6.6 trillion balance sheet beginning Dec. 1. The move, which reverses part of its pandemic-era policy tightening, could slightly ease long-term borrowing costs. The central bank had accumulated nearly $9 trillion in Treasury and mortgage-backed securities during the pandemic to stabilize financial markets, then began reducing those holdings in 2022. Recent strain in money markets, however, prompted concerns that continued reductions could disrupt short-term lending and liquidity.
Two of the 12 voting members of the Federal Open Market Committee dissented. Fed Governor Stephen Miran, a Trump appointee, argued for a larger half-point rate cut, while Kansas City Fed President Jeffrey Schmid preferred to hold rates steady, citing continued inflation risks.
Financial markets had largely anticipated another rate cut in December, but stocks slipped after Fed Chair Jerome Powell’s remarks, with the S&P 500 and Dow Jones Industrial Average ending the day slightly lower.
The decision comes amid intense political scrutiny. President Donald Trump, who has repeatedly criticized Powell for not acting quickly enough to lower rates, renewed his attacks earlier Wednesday while in South Korea. Treasury Secretary Scott Bessent said the administration is reviewing five potential successors to Powell and expects to announce a decision by year’s end.
The prolonged government shutdown has left the Fed operating in a data vacuum. Key reports on jobs, consumer spending, inflation and economic growth have been delayed or suspended entirely. September’s jobs report — originally due three weeks ago — remains unpublished, and October’s inflation data may not be released at all. The lack of timely information complicates the Fed’s decision-making, as officials try to gauge whether hiring is continuing to weaken or stabilizing.
Before the shutdown began Oct. 1, Labor Department data showed hiring had slowed sharply, with monthly job gains averaging just 29,000 over the prior three months and unemployment inching up to 4.3% in August. Several major companies, including Amazon, UPS and Target, have since announced layoffs, deepening concerns about the labor market’s health.
Inflation, meanwhile, remains above the Fed’s 2% goal but appears to be cooling gradually. A delayed government report released last week showed price increases moderating slightly, suggesting that further rate hikes are unnecessary for now. Still, the data gap leaves policymakers uncertain about whether the economy is stabilizing or weakening further.
What People Are Saying
Powell acknowledged that the limited data could cause officials to proceed more cautiously heading into its next meeting in mid-December: "There’s a possibility that it would make sense to be more cautious about moving (on rates). I’m not committing to that, I’m just saying it’s certainly a possibility that you would say ‘we really can’t see, so lets’ slow down.’”
Powell added, “For some part of the committee, it’s time to maybe take a step back and see if whether there really are downside risks to the labor market. Or see whether in fact that the stronger growth that we’re seeing is real.”
Eric Teal, Chief Investment Officer for Comerica Wealth Management, told Newsweek via email: "Disinflation in rents largely from changes in immigration policy has reduced inflation concerns while a temporarily weaker job market has been additional incentive for a rate cut and the prospect of further cuts in December. The job market weakness has propelled growth and technology stocks that are less dependent on labor supply than manufacturing, construction, and transportation industries which have generally underperformed the broad market."
Trump said Wednesday, noting Powell’s term ends in May: “He’s out of there in another couple of months."
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, told the Associated Press: “Powell poured cold water on the idea that the Fed was on autopilot for a December cut. Instead, they’ll have to wait for economic data to confirm that a rate cut is actually needed.”
What Happens Next
As Powell put it Wednesday, the Fed’s path forward “will depend on the totality of incoming information."
Updates: 10/29/25, 2:52 p.m. ET: This article was updated with new information and remarks.
Updates: 10/29/25, 3:32 p.m. ET: This article was updated with new information and remarks.
Updates: 10/29/25, 4:39 p.m. ET: This article was updated with new information and remarks.
Updates: 10/29/25, 6:42 p.m. ET: This article was updated with new information and remarks.
This article includes reporting by the Associated Press.
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