US Federal Reserve cuts interest rates for third time in 2025: What's next for borrowers?

The US Federal Reserve has cut interest rates for the third time this year, reducing the target for its key lending rate by 0.25 percentage points to a range of 3.50% to 3.75%.

While the latest dip in interest rates by the Fed marks the lowest in three years, internal divisions among policymakers are casting clouds of uncertainty about future interest rate reductions and the overall outlook for borrowers.

Fed Chair Jerome Powell indicated that officials need time to assess the impact of the three cuts made this year on the economy, while emphasising that the Fed is ready to observe how economic conditions evolve before making further decisions.

As per the Fed's economic projections, one more rate cut may occur next year, although it will depend on new data.

As three officials did not agree to the fresh plunge in interest rates, it appears that the decision to lower rates was not unanimous. Stephen Miran advocated for a larger 0.5 percentage point cut, while Austan Goolsbee and Jeffrey Schmid voted to keep rates steady.

On the other hand, US President Donald Trump expressed frustration. He even suggested that the Fed's cut should have been more substantial.

Despite a slight uptick in the unemployment rate, concerns about a weakening job market have overshadowed inflation fears, allowing the Fed to focus on accelerating the economy through lower borrowing costs.

With political pressure increasing on the Fed to act, analysts are of the view that there could be one to two more rate cuts in the next year.