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Understanding the Federal Reserve’s Latest Policy Shift
The Fed has loosened monetary policy, with the benchmark interest rate lowered 0.25% in October 2025 to a target range of 3.75-4.00%. This move reflects a mix of factors, including modestly softer inflation combined with a weakening labor market; still, another rate cut this December is not ruled out. The Fed is also continuing to conduct open market operations to maintain this target range and adjusting its balance sheet to manage liquidity.
Recent policy actions and reasoning
- Interest rate cut: In October 2025, the FOMC decided to lower the federal funds rate by 0.25%, which was widely expected by markets.
- Target range: The new target range for the federal funds rate is 3.75% to 4.00%.
- Dual mandate: The decision reflects a balancing act between keeping inflation in check and promoting maximum employment, and the rate cut is partly justified by concerns about labor market weakness.
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