2025-09-24
Fed's First Rate Cut Sparks New Global Economic Outlook: Policy Shift and Market Implications
The U.S. Federal Reserve (Fed) on September 18, 2025, announced its first interest rate cut since December of last year, lowering the target range for the federal funds rate by 25 basis points from 4.25%-4.50% to 4.00%-4.25%, officially initiating a rate-cutting cycle. According to the latest dot plot, officials expect possibly two more cuts before year-end, with the median forecast for the federal funds rate lowered to 3.6%, down from 3.9% in June. This move comes amid a backdrop of U.S. August CPI rising 2.9% year-over-year and initial jobless claims soaring to nearly a four-year high, with markets broadly anticipating the rate cut could help ease economic slowdown concerns.
Fed Chair Jerome Powell emphasized that the rate cut reflects concerns over labor market softness and that the policy shift will proceed cautiously to avoid excessive easing that could push inflation higher. The action highlights internal division within the Fed: some officials advocate for more aggressive cuts to support employment, while others remain worried about persistent inflationary pressures. Additionally, the Fed has revised up economic growth projections for this year and the next two, indicating a balance-seeking stance between inflation risks and economic support.
Market reactions have been mixed: the Dow Jones rebounded while tech stocks showed relative weakness. In the short term (1–2 months), the rate cut is expected to boost consumer and investor confidence; in the medium term (within six months), continued cuts per the dot plot could accelerate global capital flows, aiding emerging market recoveries and trade rebound. However, inflation remains the biggest variable in Fed policy, compounded by uncertainties from labor market trends and geopolitical risks affecting supply chains. Therefore, the global economic outlook still calls for cautious observation.