The Federal Reserve reduced its target range for the federal funds rate by 25 basis points, moving to 5.25 percent to 5.50 percent, the central bank announced Tuesday. It was the first cut since a nine‑month pause in easing policy, a decision the Fed framed as a cautious response to cooler inflation readings and slowing growth, rather than a pre‑commitment to more reductions.

“The Committee judged that a modest easing of policy is appropriate to support a sustainable return of inflation to 2 percent over time,” the Fed said in its policy statement. Chair Jerome H. Powell, speaking at a post‑decision news conference, reiterated that the committee remained data dependent and that the timing of further cuts would hinge on incoming inflation and employment reports. “Progress has been encouraging, but we are not there yet,” he said.

Markets reacted quickly. The S&P 500 rose about 1.5 percent in the immediate session, the Nasdaq jumped more than 2 percent and the Dow climbed nearly 1 percent as investors priced in a softer path for borrowing costs. Yields on the 10‑year Treasury fell roughly 15 basis points to about 4.05 percent, while the dollar slipped against a basket of major currencies. Mortgage rates, which had tracked higher through the summer, ticked down modestly; the average 30‑year fixed rate fell toward the low 7 percent range.

Economic data have offered the Fed room to ease after a string of indicators showed inflation moving gradually closer to the central bank’s 2 percent goal. Core personal consumption expenditures inflation—the Fed’s preferred gauge—has slowed from its peak in 2022 but remains above target. At the same time, hiring has cooled from last year’s robust pace: payrolls growth has moderated and the unemployment rate has drifted up modestly, giving officials greater confidence that a lower policy rate would not reignite price pressures.

Still, the Fed’s message was one of caution. Officials underscored that the labor market remained stronger than in typical recessions and that services inflation—particularly in shelter and wages—remained sticky. “We are lowering rates to provide insurance against downside risks to the economy, but we will remain vigilant,” Powell said, signaling that any further easing would be gradual.

Economists were split on the outlook. Some welcomed the cut as a sensible adjustment that supports growth without undermining inflation gains. Others warned that premature loosening risks entrenching higher inflation expectations and complicating the Fed’s long‑term credibility. Financial conditions have tightened substantially since the pandemic era of ultra‑low rates, and a modest shift now recalibrates the balance policymakers have been navigating for nearly three years.

For consumers and businesses, the immediate effect will be lower short‑term borrowing costs and a somewhat cheaper cost of capital for firms—factors that could support investment and housing activity. Over the longer term, the move marks a potential turning point in a policy cycle that took interest rates from near zero to multi‑decade highs and now toward a gradual normalization aimed at sustaining growth while anchoring inflation expectations. The Fed made clear the next chapters will depend on whether that balance continues to tilt in favor of disinflation.