WASHINGTON–As expected, the Federal Reserve has announced a cut in the Fed funds rate of 25 basis points, even as some have been pressuring the Fed to be more aggressive and reduce rates by 50 basis points.
The move is the first reduction in rates in 2025 and sets the target range at 4.0% to 4.25%.
“Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” the Fed said in announcing the decision. “The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
Worth noting is the Fed had in recent statements described the job market as “solid,” but it is now less rosy in its analysis.
Seven of the 19 particiapting FOMC members indicated they see no additional rate reductions this year, while two said they see one more.
Reducing Holdings
The FOMC confirmed earlier statements by saying it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.
All members of the FOMC voted in favor of the 25 basis point reduction with the exception of the just-appointed Stephen I. Miran, who wanted to see a 50 basis point reduction.
America’s Credit Unions Response
“The FOMC followed through with a widely-anticipated rate cut at its September meeting. While the committee’s statement and rate outlook moved in a dovish direction, the outlook for growth and the labor market strengthened,” Curt Long, chief economist with America’s Credit Unions, said in a statement. “Chair Powell termed the committee’s decision a ‘risk management cut,’ which may suggest less urgency to ease policy going forward. Regardless, borrowers will be pleased with today’s actions and find that while rates may change, one thing remains constant: that credit unions offer the lowest loan rates in the marketplace.”
DCUC Response
“Today’s quarter-point interest rate cut by the Federal Reserve is a welcome step toward maintaining economic stability and growth in the American economy,” Jason Stverak, chief advocacy officer with the Defense CU Council, said in a statement. “For credit unions this rate cut carries important implications for our members’ financial lives. Lower interest rates will reduce the cost of funds for lenders, making it easier for credit unions to extend credit to families, servicemembers, and veterans who need it. Whether it is a young family seeking a mortgage or auto loan, a service member managing credit card balances or applying for a personal loan, or a veteran looking to refinance, today’s Fed decision should translate into more affordable borrowing and refinancing options across the board. Members can expect to see modest declines in rates for mortgages, auto loans, credit cards, and personal loans – easing monthly payments and making essential purchases more accessible.
“On the savings side, while yields may adjust slightly in this lower-rate environment, credit unions will continue to offer competitive returns on deposits and keep checking accounts low-fee or fee-free,” Stverak continued. “We are still committed to our not-for-profit mission of financial accessibility: as member-owned cooperatives, we prioritize returning value to our members – through lower loan rates, higher savings yields, and reduced fees – even as the interest rate environment shifts. Our members’ ability to save, invest, and conduct their daily finances affordably will always be at the forefront of our decisions.
“The Defense Credit Union Council and our member credit unions are fully committed to ensuring that every member – from enlisted personnel to veterans and their families – can count on us for stable, affordable financial services. Together, we will use this period of adjustment to reinforce our members’ financial well-being and uphold the trust that communities place in their credit unions,” Stverak stated.
Mortgage-Shoppers Will Likely Have to Wait
While many would-be mortgage shoppers have been counting on a Fed move to reduce mortgage rates, it is unlikely to have much effect in the short term. Credit card balances and other variable-rate debt is expected to see the greatest effects, albeit limited.
As the CU Daily has been reporting, however, mortgage rates have been on a steady decline.
The Fed last cut rates by one percentage point between September and December of 2024.
As the CU Daily has been reporting, the Federal Reserve has been under tremendous pressure, caught between ongoing criticism from President Trump—who has called Fed Chairman Jay Powell “incompetent” among other things—and mixed market predictions. The overall jobs numbers have been disappointing in recent months, while inflation has remained stubbornly high and beyond the 2% target the Fed prefers, affected in part by tariffs.
Who Was at the Table
The meeting of the Federal Open Markets Committee (FOMC) was also noteworthy for who was there. Fed governor Lisa Cook, whom Trump has attempted to fire, won an appeals court victory that allowed her to attend the meeting. Cook typically aligns with Powell on policy decisions.
As noted above, Miran was sworn into a vacancy on the Fed’s board on Tuesday morning, just one day after being confirmed by the Senate. Miran had the oath administered by a federal judge from Atlanta, Elizabeth Branch, rather than Powell or another Fed governor, as is customary. Miran is taking leave from White House’s Council of Economic Advisors, while with the Fed and has been outspoken about the need to reduce rates.
As the CU Daily also reported earlier, Wall Street and other analysts are predicting additional quarter-point reductions in October and December.
Bank of Canada Cuts Rates
The Fed move came on the same day the Bank of Canada said it was reducing its target for the overnight rate by 25 basis points to 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.45%.
“After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing. In the United States, business investment has been strong but consumers are cautious and employment gains have slowed,” the Bank of Canada said in a statement. “U.S. inflation has picked up in recent months as businesses appear to be passing on some tariff costs to consumer prices. Growth in the euro area has moderated as US tariffs affect trade. China’s economy held up in the first half of the year but growth appears to be softening as investment weakens. Global oil prices are close to their levels assumed in the July Monetary Policy Report (MPR). Financial conditions have eased further, with higher equity prices and lower bond yields. Canada’s exchange rate has been stable relative to the US dollar.”
Canada’s GDP declined by about 1.5% in the second quarter, as expected, as the result of tariffs and trade uncertainty.
