US Federal Reserve cuts key interest rate for second time in 2025

Dubai: The US Federal Reserve cut its benchmark interest rate by 25 basis points for a second straight time in 2025 as government shutdown clouds economic outlook.

Policymakers voted 10-2 in favor of lowering the bank's key lending rate to between 3.75 percent and 4.00 percent, the Fed said in a statement, in line with market expectations of a quarter-point cut.

The central bank lifted its benchmark rate to about 5.3% through 2023 and 2024 to counter the sharpest inflation surge in forty years.

Meanwhile, the Central Bank of the UAE (CBUAE) too decided Wednesday to lower key interest rate by 25 basis points to 3.90 per cent, mirroring the Fed decision.

Ahead of the US and UAE decisions, traders worldwide fully priced a quarter-point rate reduction, with another likely in December. Lower rates could gradually ease borrowing costs on mortgages, auto loans, credit cards, and business financing.

The Fed’s move comes at a delicate moment. US job growth has slowed, while inflation still sits above the 2% target. U.S. job growth has slowed and inflation stays above 2%. With key data halted by the shutdown, the Fed faces uncertainty ahead of a possible December rate cut.

Normally, the Fed raises short-term rates to rein in inflation and lowers them to boost borrowing, spending, and hiring. Those aims now collide. The Fed is easing rates to support the job market while keeping them high enough to avoid fueling inflation again.