Fed Lowers Rates by 25bps on Weaker Job Outlook

• The Fed cut rates 25 bps to 4.00% -- 4.25% amid slowing job growth and rising unemployment.

• Powell signaled more cuts ahead if labor market weakness persists.

By Kenzie Aryasatya, Fayza Nawra Avanitanya, Muthia Noor Safitri, Imam Fakhri Prayogo Harianto 

September 19, 2025 at 16:30 GMT+7

The Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points to a range of 4.00%–4.25%, citing mounting concerns over labor market weakness. Job growth has slowed in recent months, with payroll gains decelerating and unemployment edging higher, signaling softer labor demand.

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Policymakers highlighted increasing risks to employment, particularly for younger and minority workers who have been disproportionately affected by recent economic shifts. In his remarks, Chair Jerome Powell emphasized that the labor market’s cooling trajectory was a key factor driving the decision, warning that a sustained downturn in hiring could undermine broader economic stability. 

The Fed’s statement emphasized that while inflation remains elevated, signs of a softening jobs landscape now warrant closer attention, as slowing wage growth and hiring pressures suggest the economy may be losing momentum heading into the final quarter of 2025.

Jerome Powell Talks About Cut Rates | Source: Peluang

The 25-basis-point cut marked the Fed’s first rate reduction since December, reflecting a cautious and risk-management-oriented approach. Powell described the move as a “precautionary step,” designed to balance weakening jobs data against persistent inflationary pressures. 

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The decision was not unanimous, with Governor Adriana Miran dissenting in favor of a larger 50-basis-point cut, arguing that a bolder move was necessary to stabilize the labor market quickly. While Powell acknowledged the need to remain vigilant about inflation, he underscored that the Fed’s primary focus has shifted toward preserving employment and supporting growth amid increasing economic uncertainty. 

This measured approach signals the central bank’s preference to move gradually, avoiding overly aggressive action that could reignite price instability or disrupt financial markets.

Stock Photo Fed | Source: Getty Images

Looking ahead, Fed officials signaled the potential for additional rate cuts in upcoming meetings if labor market weakness continues. Updated projections revealed a divide among policymakers, with some members expecting further reductions through early 2026, while others remain cautious about easing too quickly. 

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Powell underscored that future policy decisions will depend heavily on incoming data, including job creation, wage growth, and inflation trends. Despite inflation still running slightly above the Fed’s 2% target, the central bank placed greater weight on employment risks, underscoring its dual mandate to foster both price stability and maximum employment. 

This pivot suggests that, barring a sharp rebound in hiring, the Fed could move toward a more accommodative stance in the months ahead.

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Sources:

Reuters