Fed Eases Policy: 25 bps rate cut makes first move of 2025

SYNOPSIS

The US Fed cut rates by 25 bps to 4.00–4.25%, aiming to tackle unemployment and debt stress. The move boosts US credit and housing, while in India it may drive FII inflows, stock market gains, and possible RBI cuts.

The US Federal Reserve begins 2025 with a 25 bps rate cut, signaling a shift toward monetary easing.

The US Federal Reserve lowered its benchmark interest rate by 25 basis points on September 17, 2025, adjusting the target range to 4.00%–4.25%, and indicated that there might be two more cuts this year in response to unemployment and an unstable economy.

Reason for rate cuts

The payroll data showed decline by $30,000 per month, compared to $210,000 last year. This decline in pay checks left employees disheartened, leading to rise in the unemployment rate to 4.3%. Also Core PPI fell to 2.8% in August, slowing demand pressures and adding to concerns about economic stability. Altogether, these indicators showcased the need for monetary easing.

The rate cut is expected to relieve the pressure of the $9 trillion U.S. debt, as lower interest rates make debt refinancing easier. At the same time, cheaper borrowing costs create optimistic environment for businesses and investors, encouraging new investments and economic expansion.

 What are the Major Impacts on the USA?

1. Boost in Real Estate: Decreased interest rate will motivate people to get home loans at lower interest rates, thereby investing or buying more property, which boosts real estate.

2. Impact on Credit Cards: Declining interest rates can result in people borrowing more, which can serve to enhance their spending. The lower the interest rate, the less the burden is on credit card holders.

3. Impact on Savings Account: Rate cuts are good for borrowers but tough on savers. The interest rates are not affected due to the price cuts, and the interest rates received are low.

   
   

Major Impacts on INDIA

1. More Money Flow: A Rate cut will attract people to invest more in the country. The FIIs & FPIs who were withdrawing will come again.

2. Stock Market Boost: People will increase their investments, and stock markets will rise significantly.

3. Possible RBI cuts: The US Fed's decision to cut rates might just spark optimism in India that the Reserve Bank of India (RBI) could follow suit and lower interest rates too.

A rate cut by central banks typically has significant implications on various sectors. In IT sector, reduced interest rates lead to increase in borrowing, encouraging investment in IT expansion, research and innovation. The Nifty IT index gained 1.1% in the wake of the Fed’s action. In the metals sector, industrial activities boost as financing costs drop for big construction and infrastructure projects, which use metals. In the pharma sector, the rate cut can lower borrowing costs and ease capital expenditures for drug development and expansion.

Lending Rates have been decreased due to the rate cut. People are taking more loans due to lower interest rates. The increased spending leads to an increase in IPO investment.

Also, Imports are getting cheaper on necessity goods like cooking oil, packaged foods, etc. which benefits households to manage living costs and support consumer demand. This may further ease inflationary pressures, aligning with the Fed’s rate cut goals.

Conclusion:

The US Fed’s rate cut highlight its attempt to match economic growth with the uncertainty arising from inflation. While this move might have beneficial impacts on both economies, the rate cut can have both indirect and direct implications, such as enhancing market sentiment and impacting RBI policy expectations. With the global economy in constant evolution, it is important to understand what these policy decisions imply for investors, businesses, and policymakers look like.

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