Weekly Buzz: The Fed delivers its first rate cut of 2025

The US Federal Reserve (Fed) just delivered its first interest rate cut of the year, lowering the federal funds rate by 0.25 percentage points to a range of 4–4.25%. Markets mostly saw this coming: traders had been pricing in a September cut for weeks.

The latest readings on the US economy all but confirmed it. US core inflation – which excludes food and energy costs – matched predictions, rising 3.1% from last August. There’s also little evidence of a tariff-fueled spike that investors had been worrying about. At the same time, weekly unemployment claims in the US hit 263,000. That’s well above estimates, confirming weakness in the US jobs market.

The Fed also made it clear it’s ready to keep cutting if the data supports it. A stuttering economy could call for bigger and faster trims. Alternatively, if the economy accelerates, the central bank might pause. Rate cuts typically benefit risk assets like stocks, as cheaper borrowing costs boost economic activity. Traders now expect two more quarter-point reductions before the year is out.

💡 Investor’s Corner: How much you really need to save for retirement

The rule of thumb says you’ll need 70% to 80% of your pre-retirement income after you stop working. A study from Boston College’s Center for Retirement Research, however, found that retirees only reduce spending by about 3–7.5% after a decade. So unless you’re planning major lifestyle changes, it’s safer to assume you’ll need close to your current income.

Returns can make or break your golden-year plans

US stocks have returned 7% annually over the past three decades, after accounting for inflation. That run has encouraged investors to go all-in: Vanguard data shows that American workers in their late 30s now keep 88% of their retirement funds in US stocks, up from 82% ten years ago.

This chart shows the required saving rate you’ll need to keep the same income, assuming you’ll be working for 30 years and retiring for 30 years. When markets deliver more than 5% real returns, setting aside just 10% of your income is enough. If real returns are 3%, you’ll need to save at least 20%.

If you’re taking the cautious route, then you’ve got two levers to pull. The first is straightforward: save more. The second is building a resilient portfolio. If most of your money’s riding on US stocks, you’re betting that US stocks will keep outperforming. An alternative approach is to accept slightly lower “expected” returns for a portfolio that holds up across more scenarios. That means spreading your exposure across regions, sectors, and asset classes.

What does this mean for you?

If you assume 3% real returns, aim to save at least 20% of your income. That’s double the old rule, but building in that safety margin means setting yourself up for a more secure future. If markets do better than expected, you’ll have an even bigger cushion and a better shot at living the retirement you want.

(For a portfolio that’s built to hold up across different market scenarios, check out General Investing.)

This article was written in collaboration with Finimize.