Daily Newsletter 9/18/25

The Federal Reserve delivered its first interest rate cut in nine months, lowering borrowing costs by a quarter point and indicating that further reductions may follow. Policymakers judged that signs of weakening in the labor market outweighed recent inflationary pressures, marking the central bank’s first monetary easing of the year.

Powell said the Federal Reserve lowered interest rates because risks to jobs and inflation are now more balanced. He explained that, while inflation was previously the bigger concern, changes in the economy mean employment is now just as important, so the Fed moved to a more neutral policy.

He added that the central bank will keep using its tools to achieve stable prices and strong employment, without getting sidetracked by outside pressures. Cutting rates is mainly meant to support job growth, especially as some groups are facing higher unemployment and fewer new jobs.

In our view, one of the outstanding remarks was Powell’s statement that "You cannot achieve everything at the same time," emphasizing the difficult trade-offs the Federal Reserve faces in fulfilling its dual mandate of promoting maximum employment and maintaining price stability. This could be interpreted as a nod to the Phillips Curve* concept, which describes the inverse relationship between inflation and unemployment—meaning lowering one can lead to increases in the other. It may also be seen as an acknowledgment that the Fed is encountering challenges in fully achieving its objectives or as a sign that the Federal Reserve is preparing to reconsider or update its goals, particularly the 2% inflation target.

The markets reacted mixedly to the Federal Reserve’s quarter-point rate cut. Stocks initially rose on optimism about more cuts but ended with the Dow up while the S&P 500 and Nasdaq slipped slightly. Treasury yields also fluctuated, with the 10-year and 2-year notes rising after early declines.