Fed Cuts Rates by 25 bps, Forecasts Two More Moves in 2025

Yields rise after some Fed officials and Powell lean more hawkish than expected. UST yields gradually climbed 5 bps this morning as markets awaited news from the FOMC meeting and Powell’s press conference. In the immediate aftermath of the 25 bp cut and updated Dot Plot, yields fell 5-7 bps. However, yields quickly reversed course and hit intraday highs after Chair Powell struck a more hawkish tone than expected at his post-FOMC press conference, calling today’s cut a “risk-management” move. On the day, 2-year and 10-year yields closed 5-6 bps higher at 3.55% and 4.09%, respectively. Meanwhile, the dollar rose for the seventh straight time on a FOMC day, with the dollar spot index up 0.16%.

Fed resumes rate cuts with a 25 bp move. Today’s FOMC meeting concluded with the Fed lowering rates by 25 bps, bringing the target range to 4.00%-4.25%. The decision came 11-1 as newly sworn-in Miran dissented in favor of a half-point reduction. The updated Dot Plot shows a new median forecast of two more rate cuts this year, followed by one 25 bp move in both 2026 and 2027. Fed officials are also far from reaching a consensus on the path forward: there is a 100 bp gap between the highest and lowest Fed Funds forecasts for EOY 2025 and a 125 bp gap for EOY 2026. Meanwhile, the updated FOMC statement acknowledged that labor market conditions and inflationary pressures have worsened, saying, “Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.” The full FOMC statement with a side-by-side comparison from the last meeting can be read here.

Chair Powell emphasizes that Fed will remain data dependent. In Chair Powell’s post-FOMC press conference, he explained that growing signs of labor market weakness necessitated today’s 25 bp cut, noting that he can no longer describe the labor market as “very solid.” However, he also cited persistent and elevated inflationary pressures, underscoring the tension between the Fed’s dual mandate goals. Tariffs remain a specific concern, and Powell specified, “Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.” Risks to both side of the Fed’s dual mandate mean that the Fed will remain in a “meeting-by-meeting situation,” and Powell is still not ready to commit to a series of rate cuts throughout Q4.