Federal Reserve cuts rate for second time in 2025 

David Mitchell is surprised tariffs have not impacted the inflation rate more. 

After holding the line for much of the year, the central bank’s Federal Open Market Committee made a rate cut for the second consecutive meeting.  

While not unanimous, the Federal Reserve lowered its benchmark lending rate by a quarter of a percentage point following a 10-2 vote on Oct. 29. With the cut, the federal funds rate now has a range between 3.75% and 4%. 

As he did at the last FOMC meeting in September, Fed governor Stephen Miran advocated for a half-point cut, while Kansas City Fed President Jeffrey Schmid voted in support of no cut at all. 

“The committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run,” the FOMC said in a statement. “Uncertainty about the economic outlook remains elevated. The committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.” 

David Mitchell, professor of economics and director of the Bureau of Economic Research and Center for Economic Education at Missouri State University, said the Fed’s dual mandate of maximum employment and price stability is complicated by the inflation rate.  

The consumer price index posted a seasonally adjusted 0.3% increase in September, according to the U.S. Bureau of Labor Statistics. That put the annual inflation rate at 3%, up 0.1% from the prior month. The increase was less than some economists were predicting, which Mitchell said may be factored by a smaller impact than expected due to tariffs.  

“Many, myself included, have been surprised at how much the tariffs have not come into the inflation picture yet,” he said. “I think a lot of that has to do with people built up all those inventories and are still trying to draw some of those down.” 

Mitchell said there also may be some component of companies not criticizing the tariffs for fear of being called out by the Trump administration. 

“They’re trying to eat some of the tariff or basically increase the prices slower than what they would normally, so it’s a little bit harder for the consumers to see,” he said. “And so, I think that’s why we haven’t seen inflation jump to say 4% or 5%.” 

The latest vote comes as the FOMC noted in its statement that job gains have slowed this year, and the unemployment rate has crept up yet remains low through August at 4.3%, the most recent data from the BLS. 

“The problem is that we’ve seen this softening in the labor market, and we’re not exactly sure how much of it is from immigration slowing down or even declining in some areas,” Mitchell said.  

While Mitchell said there could be some loosening of mortgage rates following the Fed’s decision, he doesn’t expect there to be many short-term impacts. 

“In terms like people’s credit card rates and things like that, I don’t see the banks are going to cut their rates a quarter point unless there’s a lot of competition among other banks to switch a balance to them,” he said. 

While the FOMC’s post-meeting statement didn’t indicate a clear direction the group would take at its final meeting of the year in December, Chairman Jerome Powell said at an Oct. 29 news conference that further reductions were not a certainty. 

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.” 

Mitchell said he gives a low percentage chance of another cut this year due to the Fed’s concern about sticky inflation. 

“I think odds of that are maybe 20%, 25%,” he said. “Inflation just continues to be persistent. They really want to get inflation down to 2%.”