- Decision
- Lower
- Rate change
- 25 bps
- federal funds rate
- 4.25%
The Federal Open Market Committee cut the federal funds target range by 25 bp to 4.00–4.25 percent, citing moderating first-half growth, slower job gains, a slight uptick in unemployment and a renewed rise in still-elevated inflation, while noting heightened downside risks to employment. After keeping the range at 4.25–4.50 percent for five straight meetings since January, this marks the first reduction. To implement the stance, the interest rate on reserve balances was lowered to 4.15 percent, the Desk will operate to keep the funds rate within the new band, maintain the overnight repo facility at a 4.25 percent minimum bid and the overnight reverse repo rate at 4.00 percent, and continue balance-sheet runoff under existing monthly caps of USD 5 bn for Treasuries and USD 35 bn for agency MBS; the primary credit rate was cut to 4.25 percent. The Committee will monitor labor, inflation and financial developments closely and signalled it will calibrate policy further as incoming data and the evolving risk balance warrant, reiterating its commitment to maximum employment and 2 percent inflation.
Rate evolution
From June 2025 to September 2026, the Federal Reserve lowered the target range for the federal funds rate by a net 50 basis points, from 4-1/4 to 4-1/2 percent to 3-3/4 to 4 percent, after holding steady through mid-2025, cutting over September to December, pausing through July 2026 and raising the range in September. The initial holds reflected activity that was still expanding, a low unemployment rate and solid labor market conditions, alongside inflation that remained somewhat elevated, while uncertainty had diminished somewhat in June but was still elevated and risks were seen on both sides of the dual mandate. Cuts began as growth moderated, job gains slowed, unemployment edged up and the Committee judged downside risks to employment had risen, even though inflation had moved up and remained somewhat elevated, with the late-2025 easing accompanied by dissents both for larger cuts and for no change.
The Committee kept the federal funds rate unchanged in April, June and July 2026 as activity expanded at a solid pace, unemployment changed little and inflation remained elevated. April cited higher global energy prices, while June and July pointed to supply shocks that drove price increases in certain sectors, including energy, and highlighted strong productivity growth, capital investment and job gains that kept pace with the workforce, while linking elevated uncertainty in part to the conflict in the Middle East. After three members dissented in July in favor of a 1/4 percentage point increase, the Committee unanimously raised the target range by that amount on September 16, citing resilient domestic spending, strong productivity growth, robust capital investment and elevated inflation, and said the action would support a timelier return to its 2 percent goal.