For the first time in 2025, the Federal Reserve is reducing the cost of borrowing, including for credit cards, loans and auto financing.
As expected, the central bank cut the federal funds rate by 25 basis points on Wednesday, bringing it down to a range of 4% to 4.25%. That benchmark rate influences how much interest lenders charge on certain types of credit and loans.
The Fed has kept borrowing costs elevated for more than two years to help slow inflation, since higher rates make it more expensive for households and businesses to spend and borrow. On July 30, Fed chair Jerome Powell had described the rate as “modestly restrictive.”
Despite higher borrowing costs, inflation rose to 2.9% in August from a year earlier, above the Fed’s 2% target. But the central bank is now shifting focus to a weakening labor market, as job growth has slowed in recent months. Both price stability and supporting the labor market are part of the Fed’s dual mandate.
President Donald Trump has been publicly pressuring the Fed to lower rates. On Sept. 15, he wrote on Truth Social: ”‘Too Late’ MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!,” referring to Powell.
