Fed’s 0.25% Rate Cut Sparks Tech Rally: Impacts on Startups in 2025
- Aysa Bilginer
- Sep 25
- 4 min read
Updated: Sep 27
Summary
On September 17, 2025 the Federal Reserve’s FOMC cut its key overnight rate by 25 basis points, lowering the target range to 4.00–4.25%.
Financial markets jumped, with U.S. stocks hitting record highs and growth/tech sectors leading gains (Reuters notes the S&P 500 Growth index climbed ~17% YTD)[3]. Early trade on the cut saw equity futures and tech shares rally on expectations of easier credit (though some caution persisted among investors).
The Fed said the move “remains appropriate to support [sustainable] growth,” citing moderate inflation and a cooling labor market. It was described as a risk-management step given slowing job gains and financial strains.
At its mid-September policy meeting in Washington, D.C., the Federal Open Market Committee (FOMC) chaired by Jerome Powell voted to trim the federal funds rate by a quarter point. This was the Fed’s first cut since December 2024, after holding rates at a 4.25–4.50% band through a tightening cycle. Policymakers cited softening economic data: U.S. nonfarm payrolls averaged only ~29,000 per month in the summer (down sharply from ~82,000 a year ago), and core inflation was running around 2.9% year-over-year by August. Mortgage rates had recently drifted lower as well, reducing consumer financing costs.
The rate cut was widely anticipated by markets, and Fed Chair Powell had signaled for months that “near-term risks to inflation are tilted to the upside” but that underlying price pressures were easing. Notably, economists pointed out that while tariff-driven costs are rising, businesses had been largely absorbing those costs rather than passing them on, limiting inflationary spikes in the near term[9]. The September decision follows earlier Fed easing (three cuts of 25–50 bps in late 2024) and comes amid global monetary easing and pressure from slower growth.
Details of the rate cut
The 25 bp cut lowers borrowing costs across the economy. For startups and tech firms, cheaper financing can be significant. Lower policy rates typically reduce interest on business loans and venture debt, potentially boosting investment and valuations. Historical data suggest that tech and growth sectors often rally after Fed cuts: one analysis finds Information Technology stocks averaged a 22% rally in the year following past Fed easing cycles[10]. In the current environment, U.S. startup funding remained strong, driven by an AI boom with early 2025 venture investment already on track for one of its strongest years ever[11].
Concretely, the Fed’s move should help ease funding conditions. Investors often become more willing to finance riskier ventures when safer yields are low. BioPharma industry analysts note that “falling interest rates will clearly be better for riskier segments” like biotech and startups[12]. Cheaper credit also allows existing young firms to refinance debt. With the Fed pause, borrowing costs should edge down further; 10-year Treasury yields fell as markets priced in more easing, improving valuations for long-term growth companies[13].
On the other hand, inflation is still a concern. August’s CPI data showed a 0.4% monthly rise (2.9% YOY)[7], and the Fed will continue monitoring if tariffs and wage pressures reignite inflation. But for now, moderating inflation and cooling labor markets have given the Fed room to cut.
Responses and Reactions
Fed officials defended the move as prudent. Governors Lisa Cook and Austan Goolsbee described the rate cut as a risk-management measure to sustain employment growth, noting that it would support the economy while inflation remains close to target[4]. Dallas Fed President Patrick Harker said the Fed can “watch the path of inflation” as it loosens policy. However, Fed Governor Michelle Bowman dissented: she preferred a larger 50 bp cut to more clearly counteract economic headwinds[14].
On Wall Street, analysts pointed to optimism in growth shares. Reuters observed that “U.S. stock markets [were] trading at record highs, with technology stocks among the top performers this year”[15]. Some investors noted parallels to earlier cycles: after the last Fed easing cycle, consumers and tech rallied strongly. Others urged caution, warning that repeated cuts could overstimulate the economy.
In the tech and venture community, stakeholders were broadly supportive.
Tech CEOs and venture capitalists said the move should encourage more startup funding and innovation. For example, BioPharma veterans highlighted that in past cuts, “fund flows into… biotech” improved, and predicted investors would “lean in” on early-stage projects[12]. Nevertheless, a few observers cautioned that long-term success depends on stable growth and that sustained inflation could limit Fed’s future flexibility.
Next Steps
The Fed will use its next meetings (scheduled for November 2025 and December 2025) to gauge effects. Officials will closely watch incoming inflation reports, notably the Personal Consumption Expenditures (PCE) and Consumer Price Index data[7]. If inflation falls further or growth slows, the Fed may consider additional cuts; if not, it could pause. In the interim, financial conditions may ease as banks lower lending rates.
For startups and investors, the near term brings financing opportunities. Lower rates can motivate refinancing existing debt or locking in longer-term loans. Venture firms may resume fundraising if limited partners grow more confident in the asset class. However, many will still proceed cautiously, given high valuations and potential macro risks.
Disclaimer
This analysis is for informational purposes only and is not financial advice. The numbers and scenarios are based on publicly available data and estimations; outcomes may differ materially based on regulatory decisions, market behavior, or other developments, which could extend beyond 2025. Always consult a qualified financial advisor before making investment decisions.
Join our community of 60k Innovators and Continue the Discussion
Comments