The Federal Reserve (Fed) lowered its benchmark interest rate by 0.25 percentage points from 4.25–4.50% to 4.00–4.25% on the 17th, as widely anticipated by markets, and signaled the possibility of two additional rate cuts this year. This has heightened expectations for consecutive rate reductions at the remaining two monetary policy meetings in October and December. However, the Fed's projection for only one more rate cut in 2026, combined with internal divisions over the economic impact of tariff policies, continues to fuel uncertainty about the future path of interest rates.

The 0.25 percentage point rate cut ahead of the Federal Open Market Committee (FOMC) announcement was a fully anticipated event. The primary backdrop was the recent employment report, which showed intensifying signals of a weakening job market. Market attention naturally shifted to the signals the Fed would send regarding the timing and magnitude of further rate cuts. Amid ongoing uncertainty over the Trump administration's tariff policies, economists have been engaged in heated debates about whether the Fed would prioritize the risk of labor market weakness or the risk of inflation rebound.■ Expanded to Three Cuts This Year.

Among the FOMC outcomes announced on the day, analysts first focused on the Fed's Summary of Economic Projections (SEP), particularly the "dot plot" of interest rate projections. According to the September economic projections dot plot, the median forecast for the benchmark rate at the end of 2025 among Fed officials is 3.6%, down 0.3 percentage points from the June projection of 3.9%.

In the June projections, Fed officials had anticipated a total of two rate cuts (0.50 percentage points) this year, but the September outlook has shifted to a more "dovish" (favoring monetary easing) stance, forecasting three cuts in total (0.75 percentage points).

With uncertainty persisting over the Trump administration's tariff policies, concerns within the Fed about a potential inflation rebound remain a factor making future policy moves unpredictable. In fact, the September dot plot shows that officials project the benchmark rate at 3.4% by the end of 2026, anticipating just one additional cut from the end of 2025 levels. This falls short of market expectations.

Considering that the dot plot reflects a "median" value and reveals dispersion in opinions among Fed officials, it suggests that the Fed could adopt a more cautious approach to further cuts depending on upcoming employment and inflation data. In the post-FOMC press conference, Chair Powell stated, "Changes in government policy continue to evolve, and their impact on the economy remains uncertain," adding, "Higher tariffs have begun to push up prices in some categories of goods, but the overall effects on economic activity and inflation are still something we need to monitor."

■ Relief for Businesses and Households

With the benchmark rate cut, consumers are getting some breathing room, though interest rates on credit cards, mortgages, and auto loans remain high. Auto loan rates, influenced by 5-year Treasury yields, are determined by a combination of factors including individual credit scores, vehicle type and price, down payments, and loan terms. Mortgage rates are more heavily influenced by 10-year Treasury yields than the Fed's benchmark rate. The current 30-year fixed mortgage rate, around 6.4%, may see a slight decline but is not expected to fluctuate significantly. Second mortgages like home equity loans and home equity lines of credit are directly affected by the benchmark rate.

For existing federal student loan borrowers, rates are fixed and thus unaffected by this benchmark rate freeze. However, new borrowers will face relatively higher interest rates. For undergraduates, rates on loans are in the 4–5% range, a high level compared to the average below 3% just three years ago. In the previous high-interest-rate environment, savers benefited from high yields on CDs and savings accounts. But with the confirmed trend of future benchmark rate cuts, interest rates offered by financial institutions are beginning to decline. For CDs or savings products, it is advisable to lock in current rates before they fall further.

By Hwandong Cho