Fed delivers second straight rate cut as growth slows and job market softens

The Federal Reserve said yesterday that it lowered the target rate, for the federal funds rate, which comes from its Federal Open Market Committee (FOMC) for the second consecutive month, dropping it by 0.25%, to 3.75%-to-4.0%, its lowest rate level since 2022.

This followed its meeting last month, in which it dropped the rate to 4.0%-to-4.25%, while also representing a shift from previous meetings.

As previously reported by LM, Federal Reserve Chairman Jay Powell said in late August that the Fed was possibly open to reducing the rate, which came to fruition in September.

That represented a shift from previous Fed meetings. In late July, it kept the rate at 4.25%-to-4.5%, which marked the fifth time in 2025 rates remained unchanged. Which was preceded by three consecutive rate cuts in 2024, including: a reduction to 4.75%-to-4.5% in September; a reduction from 4.50%-to-4.75% in November; and a reduction to 4.25%-to-4.50% in December. Today’s action represents the second rate cut in 2025.

The FOMC said that available indicators suggest that economic activity has been expanding at a moderate pace. To that end, it said job gains are slowing, and the unemployment rate has edged up while staying low through August, with more recent indicators consistent with those developments. As for inflation, it noted that it has moved up since the beginning of the year, remaining somewhat elevated.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the FOMC said. “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 rose in recent months.”

While concerns regarding the economy, driven in large part by ongoing tariffs and trade policy, which many industry stakeholders view as increasing supply chain uncertainty on myriad levels, bringing inflation down remains a key objective for the Federal Reserve, at a time when much remains in flux, for various reasons.

Ten of the 12 Federal Reserve board members voted to cut the rate by 0.25% with one other board member voting to lower the rate by 0.5%, and another board members preferring no change.

As for whether the Federal Reserve will lower the rate again at its next meeting in December, given that Chairman Jay Powell previously said another 0.25% reduction would be likely, various reports indicated that may no longer be the case.

“A further reduction of the policy rate in December is not a foregone conclusion—in fact, far from it,” he said, at a press conference yesterday, as noted in various media reports.

Paul Bingham, Director, Transportation Consulting, at S&P Global Market Intelligence, told LM that the rate reduction was expected, given recent employment and inflation indicators.

There was no surprise to the markets in this action and the commentary in the announcement confirmed the Fed is monitoring performance in job markets as well as price inflation with neither where the Fed would prefer them to be.

“The [Fed] reaffirmed its long-term 2% Consumer Purchasing Expenditure inflation target and their dual goal of greater employment,” he said. “For transportation and logistics, this action supports improvements in business cost of capital, which marginally will help support more business investment spending. However, the reduction also acknowledges softness in the economy where demand growth is running less than its potential across the economy.”

Keith Prather, Armada Corporate Intelligence Managing Director, was direct, saying the rate reduction hit with a thud, in that the 0.25% cut was expected.

“[The] stopping its balance sheet balancing act is over and was expected and things were good: until Powell sent a little bit of a shudder through markets with his comments about December (questioning the next cut),” he said. “I thought it was interesting that [Federal Reserve Board member Stephen] Miran was one of the dissenters asking for 50 basis points instead of 25. I would have expected him to be looking for a lot more in cuts (75-100). Maybe they have access to data that shows that the labor market concerns are not as big as headlines might suggest. Layoffs certainly have gotten my attention! I'm getting a little concerned about the demand side of the economy. I've been really focused for the last year over getting inventories balanced and the overstock cycle over, that's done. Anyone that wanted to balance them has.

It doesn't help when big names in the S&P 500 are announcing thousands of layoffs in a single whack. I think that rips through most markets and really impacts consumer sentiment. The bond market reacted interestingly, yields started to ease on the initial announcement, and then jumped when December suddenly seemed to be a 50/50 shot (down from 80-90% chance of a rate cut in December prior to the call). Home builder stocks and others dropped on the news…that's troubling.” 

As previously reported, a recently-conducted Logistics Management reader survey of more than 100 freight transportation, logistics, and supply chain stakeholders found that 63% of respondents felt a rate cut would help, with 37% saying it would not.

Reasons cited for the former included: access to cheaper capital helping the sector and various businesses; reducing interest payments and improving cash flow; spurring housing sector growth; and improving consumer demand, among others. And reasons for the latter included: labor issues not subject to interest rates and deflation, among others.