The U.S. Federal Reserve on Wednesday announced its third interest rate cut of the year, lowering the key rate by 0.25 percentage points to a range of 3.5% to 3.75%. The move comes amid growing concerns about a potential slowdown in the labor market, compounded by limited economic data availability due to the recent government shutdown. While inflation remains above the Fed’s target, officials signaled a belief that current high prices are largely temporary, despite a recent 3.0% year-over-year increase in September [[1]].
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- The U.S. Federal Reserve has lowered its key interest rate for the third time this year.
- The central bank’s governing council reduced the interest rate range by 0.25 percentage points to between 3.5% and 3.75%, the Fed announced in Washington.
- Concerns about a weakening labor market were again cited as the reason, while persistent, though believed to be temporary, high inflation also factored into the decision.
The risks to employment have increased in recent months, according to the Fed. A majority of economists had anticipated a rate cut.
Due to the recent government shutdown and associated budgetary dispute in the U.S., the Fed had access to significantly less data than usual. Numerous federal agencies had suspended operations for weeks. The Bureau of Labor Statistics (BLS) announced that October inflation data would be unavailable – and could not be reconstructed later. November figures are not expected to be released until mid-December.
In September, consumer prices rose 3.0% year-over-year, remaining well above the Fed’s medium-term inflation target of 2.0%. This would typically argue against a rate cut. However, experts had feared an even larger increase, leading the concerns about the U.S. labor market to outweigh inflation worries.
For the third time this year, the U.S. Federal Reserve is cutting its key interest rate.
Keystone/ Jacquelyn Martin
Through its interest rate decisions, the U.S. Federal Reserve attempts to strike a balance between stable prices and maximum employment. Interest rates that are too high can stifle economic growth due to increased borrowing costs. Lower rates stimulate growth and the labor market, but can also fuel inflation.
Increased Growth and Lower Inflation Expected in 2026
The Fed now also anticipates stronger growth in the coming year. The median forecast is for a 2.3% increase in 2026 – compared to 1.8% predicted in September. Economic expectations for the current year have slightly increased to 1.7% (previously 1.6%).
Inflation, however, is expected to decline in 2026: Despite President Donald Trump’s aggressive trade policies, the central bank now expects a rate of 2.4% instead of the previously forecast 2.6%. Experts had predicted an inflation rate of 3.0% for 2025 – now they expect 2.9%.
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