On September 17, 2025, the Federal Reserve cut the federal funds rate by 0.25% to a target range of 4.00% to 4.25%, citing softer job gains and elevated uncertainty even as inflation remains “somewhat elevated.” Many outspoken critics argued that the cut should have been at least 0.5%. The Committee said future moves will depend on incoming data and the balance of risks. Chair Jerome Powell framed this as a “risk-management cut” as a precaution to support growth as the labor market cools, while emphasizing a meeting-by-meeting approach from here versus a predefined plan.
Are more cuts coming in the next 6–12 months?
Probably, especially if the data keep softening. The Fed’s new projections (the “dot plot”) imply a lower path for rates into year-end and 2026. The median Fed funds projection for end-2025 is 3.6%, below today’s 4.125% midpoint, signaling room for additional easing if conditions justify it. Powell did not pre-commit and maintains that they will continue to look at the data as it becomes available.
Bottom line: The door is open to more cuts, but the cadence is not guaranteed. If inflation progress stalls, the Fed can slow or pause; if the labor market weakens faster, it can accelerate.
How this could affect inflation and the U.S. dollar
- Inflation trajectory: Easing policy adds a tailwind to growth, but the Fed’s own projections still show inflation drifting down over 2025 to 2026 rather than re-accelerating. That’s consistent with a measured cutting cycle, not an aggressive one.
- U.S. dollar: In theory, lower rates weaken the dollar. In practice, near-term moves hinge on relative policy (what the ECB/BoE/BoJ do) and the Fed’s tone. Immediately after the decision, the dollar firmed because Powell’s “risk-management” framing wasn’t a green light for rapid easing. We fully expect choppy and volatile FX as data roll in.
What you can do right now
Panic! Just kidding…
Individuals & Families
- Refi scan for mortgages & HELOCs. If your credit profile is solid and you’re within 0.5 to 1.0% of a meaningful refi, start the paperwork so you can jump on a good deal if rates tick down again. Keep in mind, mortgage rates don’t move one-for-one with the Fed, but easing helps reduce them over time!
- Tune up variable-rate debt. Ask lenders about converting variable balances (credit cards/HELOCs/private loans) to lower-rate fixed options if spreads are favorable.
- Optimize your cash buckets. High-yield savings and short CDs may drift lower as cuts accumulate. Consider a 3–9 month T-bill/CD ladder to lock yields where sensible, keeping an emergency reserve liquid.
- Tax-aware portfolio moves. A gentler rate path supports bond prices. Review duration (you may not need to stick with ultra-short forever) and consider tax-loss harvesting opportunities created by year-to-date volatility.
Business Owners
- Right-size working capital. Get lines of credit re-underwritten now; lower rates + fresh covenants can improve flexibility heading into 2026.
- Finance strategic capex. If you shelved projects when money was tight, re-run ROI with updated borrowing costs but stress-test demand in case growth slows more than expected.
- Price & FX discipline. If you import/export, the dollar’s path will be data-driven, so it’s important to build hedging and currency clauses into contracts to manage swings.
Key takeaways
- The Fed delivered a measured cut and signaled flexibility with an emphases on not using a pre-set cutting cycle.
- The new projections point to lower policy rates by year-end if inflation keeps easing and the labor market cools.
- Expect bumpier FX and asset moves day-to-day; near-term dollar strength doesn’t preclude a softer trend if cuts continue.
- Practical action now: refi readiness, smarter cash ladders, duration tune-ups, flexible credit lines, and disciplined FX planning.
