September 30, 2025      

     After ten months of holding policy rates steady, the Federal Open Market Committee (FOMC) resumed rate cuts at their September 16-17 meeting. Fed Chairman Powell, in his post-meeting press conference, termed it a “risk-management cut to reduce the chances of more serious labor market cooling.” As widely expected, the Fed lowered the targeted fed funds range by 25 basis points to 4.00% to 4.25%, as the central bank became increasingly attuned to the downside risks to the labor market. The July and August employment reports revealed a sharp slowdown with notable downward revisions to previous months. Along the same theme, the Bureau of Labor Statistics’ (BLS) preliminary benchmark revision for the period between April 2024 to March 2025 estimated there were 911,000 fewer jobs in those months.

     The deterioration in the labor market overshadowed the Committee’s stable prices mandate, as the risk of rising prices is still tilted to the upside with inflation remaining stubborn and sticky. The Consumer Price Index (CPI) in August came in a bit hotter than expected and at 2.9% year-over-year and is well above the Fed’s 2% goal. Details of the CPI report revealed further upward pressure on goods prices last month, while service inflation also remained elevated. The Fed’s favorite inflation measure, the core (excluding food and energy) Personal Consumption Expenditures (PCE) Deflator also stands well above the Fed’s target at 2.9%, year-over-year.

      The vote to cut rates by 25 basis points was not unanimous. Newly confirmed Governor Stephan Miran dissented, favoring a 50 basis point cut. Governors Waller and Bowman, who dissented in July, wanting a 25 basis point cut at that time, voted with the majority. The Summary of Economic Projections (SEP) dot plot showed a dovish tilt, with the median fed funds rate forecast for year-end revised down to 3.625%, suggesting two more rate cuts this year. The previous (June) dot plot had projected only two rate cuts this year, one of which has now occurred. Still, closer examination of the dots suggest there is a sizable group of FOMC members who want to see the Fed move more slowly, and several have commented about their ongoing concerns over inflation. The Fed’s projections for GDP and inflation were little changed from their prior Summary of Economic Projections (SEP), leaving some questions any need of cutting rates more quickly.