Federal Reserve Implements Second Rate Cut to 3.75%-4.00% Amid Economic Uncertainty

On October 29, 2025, the Federal Open Market Committee (FOMC) of the United States Federal Reserve executed a second consecutive reduction in its benchmark interest rate by 25 basis points. This action brought the target range to 3.75% to 4.00%, a move largely anticipated by financial analysts seeking to support underlying economic activity. The decision reflected the Fed’s ongoing balancing act between slowing employment momentum and persistent, albeit somewhat elevated, inflationary pressures.

The FOMC statement indicated that while the unemployment rate remained low through August, the pace of job creation had demonstrably slowed this year, with recent indicators consistent with this cooling trend. Simultaneously, inflation has trended upward since the year began, remaining above the Fed's long-term target of 2%. Adding a significant policy shift, the committee formally announced the conclusion of quantitative tightening—the reduction of its securities holdings—effective December 1, signaling a pivot toward a more accommodative financial environment.

Fed Chair Jerome Powell addressed the complex factors influencing the decision, noting that the trajectory of the economy is significantly obscured by the ongoing government shutdown, which caused delays in the release of crucial economic indicators. Powell also cited the impact of President Donald Trump's trade tariffs as a contributing element to upward pressure on inflation. He expressed concern over the rising potential for a weakening labor market, suggesting a need for proactive measures to maintain stability, though he cautioned that a further rate cut in December is not a "foregone conclusion" due to differing views among members.

This policy recalibration immediately affected asset markets. Major digital assets experienced a notable contraction following Powell's comments regarding future cuts. Bitcoin (BTC) settled around $111,500, registering a dip over the preceding 24 hours, while Ethereum (ETH) slipped beneath the $4,000 threshold. The market reaction suggested that while the rate cut itself was expected, the underlying economic fragility highlighted by Powell prompted a re-evaluation of immediate risk exposure among investors.

The policy shift continues a cycle of easing that began with a cut in September, following a period of rate holds. The current target range of 3.75% to 4.00% is the lowest level since 2022. The decision to cut was supported by 10 of the 12 governors, with Stephen Miran favoring a larger 50 basis point reduction and Jeffrey Schmid voting against any change, underscoring the internal division regarding the appropriate path forward.