Federal Reserve cuts interest rates for the first time since December 2024: our Investment Team's view

At a glance

• The Federal Reserve has cut rates by 0.25% following its September policy meeting on 17 September. The new target range for the federal funds rate is 4.00%–4.25%.
• Forecasts by Federal Open Market Committee members suggest that further rate cuts totalling 0.50% are expected by the end of the year.
• Our investment team believes that this move could be a positive influence for risky assets such as equities, especially for the US market.

What happened at the September meeting, and why?

At their meeting on 17 September, the Federal Open Market Committee (FOMC) of the Federal Reserve, which sets monetary policy in the US, voted to cut interest rates by 0.25%. The decision to reduce rates was unanimous amongst voting members, a surprise, with only one member electing to vote for a larger 0.50% cut.

This has taken the Fed's target range for the federal funds rate down to 4.00%–4.25%, with banks typically lending to each other at a rate within this range. Whilst not directly tied to consumer and business loans, the cut allows for lower rates to flow into these products via the banking system.

Upper bound of the federal funds rate, since 2020

Source: Macrobond, Nutmeg, 18 September 2025

The FOMC has a dual mandate, it "seeks to achieve maximum employment and inflation at the rate of 2% over the longer run". While inflation has nudged higher in recent months, rising to 2.9% in August, the Committee has noted that it "is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen".

Despite inflation remaining above the 2% target, the rate cut and subsequent commentary suggests that the FOMC is focusing more now on recent weaker employment data and the prospects for economic growth. As we noted in our September Investor Update, we have seen weaker-than-expected data on the US labour market of late. The unemployment rate has ticked higher, up to 4.3% in August, its highest reading of the year. Additionally, fewer jobs were added to the US payroll in July and August than anticipated, while June's data was revised to a contraction.

Our Investment Team's view

We believe this is a positive move for risk assets such as stocks, notably the US market. Across our range of actively-managed portfolios, we continue to hold an 'overweight' position in US equities. Having a greater allocation to the region than our long-term strategic asset allocation model reflects our positive view on its prospects. The corporate earnings environment remains very strong, and lower interest rates have the potential to boost consumer and business spending.

Looking ahead, the median forecast from FOMC members suggests further rate cuts totalling 0.50% by year-end, likely delivered in two 0.25% reductions at the remaining meetings in October and December. Comparing this to their view at the start of the summer, at their June meeting, rates are now forecast to end the year lower. Back in June, the projection was for the range to finish the year at 3.75%–4.00%, while this has now shifted to 3.50%–3.75%. Further rate cuts could provide additional positive momentum to US equities and global stocks more broadly.

We continue to monitor developments at major central banks globally and assess the implications for our investment outlook on an ongoing basis.

Risk warning

As with all investing, your capital is at risk. The value of your investments with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance. We do not provide investment advice in this article. Always do your own research.