Fed restarts cutting: 25bp to 4.00-4.25%, first since December

The FOMC on September 17 2025 cut rates 25 bps to 4.00-4.25%, resuming the easing cycle after a 9-month pause (December 2024 was the last cut). The decision reflected accumulating evidence that post-Liberation Day tariff effects were transmitting to growth through supply chain frictions and margin compression, even as headline inflation remained above target at 3.1%. The dot plot showed 2 additional cuts in 2025 and 4 in 2026, a meaningful dovish shift.

Markets welcomed the restart cautiously. The S&P 500 gained 0.89%, small caps outperformed (IWM +2.05%) on rate-sensitivity, and the dollar weakened on narrowing rate differentials. Long-duration bonds rallied but the move was muted (TLT +0.65%) as the dot plot's 2026 path was already partly priced. Gold continued its secular uptrend, closing near $3,300.

The September 17 cut confirmed the Fed's reaction function was now weighted toward growth protection rather than inflation pursuit. Core PCE had stabilized around 3.0% through summer 2025, and while still above target, the deterioration in business investment and the steady rise in unemployment to 4.6% gave the committee cover to cut. Subsequent cuts December 2025 (-25) and March 2026 (hold) brought the cycle to a cautious pace consistent with Powell's "walk, not run" framing established at Jackson Hole.