- The FOMC cut its target benchmark rate by 25 basis points to a 4.00%–4.25% range.
- The Fed Median Projection shows 50 bps of further rate cuts in 2025.
- Fed Governor Stephen Miran dissented in favor of a 50 bp rate cut at the September meeting.
Federal Open Market Committee (FOMC) members voted to resume their rate-cutting campaign at the September Fed meeting—the FOMC cited concerns of a weakening labor market as cause to cut rates for the first time in nine months. Fed officials lowered their benchmark interest rate by a quarter percentage point to 4.00%–4.25% and penciled in two more reductions this year. Stephen Miran was the only official to dissent, preferring a larger, half-point cut. Fed Chair Jerome Powell highlighted labor market softness as central to the committee’s decision; “I can no longer say” the labor market is “very solid,” he told reporters at the Wednesday press conference.
The Fed remains focused on its dual mandate of price stability and maximum employment. At Wednesday’s press conference, Chair Powell noted that the rate cut reflects a shift in the “balance of risks,” with rising downside risks to employment. Slower job growth stems from both reduced labor supply—due to lower immigration and participation—and waning demand for workers. However, inflation remains “somewhat elevated” and has “picked up,” with disinflation in services continuing. Powell also acknowledged that tariffs are beginning to push goods prices higher, with inflationary effects expected to build into next year.
The FOMC released their updated Summary of Economic Projections (SEP)—a quarterly report that summarizes the Fed’s forecasts for key economic variables like Gross Domestic Product (GDP) growth, unemployment rate, and inflation. The SEP also includes each committee member’s projection for future interest rates in the form of the Dot Plot. The Dot Plot of rate projections showed the median official expected to lower rates by another half percentage point by the end of 2025, and a quarter point in 2026, slightly more than they expected over the same period in June. One outlier official projected the policy rate would drop by another one and a quarter percentage points by December—a notable change from last set of economic projections back in June, when not a single Fed official saw the midpoint target level for the federal funds rate below 3%.
In the SEP, the median Fed projection maintained an underlying inflation estimate of 3.1% for 2025, unchanged from the forecast in June. The updated projections show inflation finally returning to the Fed’s 2% target in 2028. Should this projection come to fruition, it would mark seven straight years of inflation surpassing the target. SEP increased GDP estimates to 1.6% by end of 2025, and 1.8% in 2026, up from 1.4% and 1.6% previously.
The core driver of the Fed’s decision to cut rates is the weakening labor market. The Bureau of Labor Statistics (BLS) overstated the Nonfarm Payroll (NFP) figures significantly in 2023 and 2024. The BLS revised the figures down by 818,000 and 911,000, respectively, an average of 68,000 and 76,000 per month. When adjusted for these downward revisions, the NFP figures demonstrate a historically weak labor market since early 2024. The September 9 BLS preliminary benchmark revisions showed nearly 911,000 fewer jobs on March payrolls than previously estimated, a revision of 75,000 jobs a month. This marks the third consecutive year of significant downward revisions, alluding to a cooler-than-expected job market. Moving forward, the labor market will be the determining factor of future monetary policy actions from the Fed.
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