FOMC September Decision: Fed Cuts Rates 25 bps

Fed trims rates by 25 bps; Powell cites labor market risks, says cuts remain data-driven with October in focus.

The Federal Reserve cut its benchmark interest rate by 25 basis points yesterday, a move that officials described as a “risk management” step aimed at addressing labor market risks. Chair Jerome Powell emphasized in his press conference that inflation risks have eased somewhat but reiterated that policy remains data-dependent and will proceed on a meeting-by-meeting basis.

The decision revealed limited appetite for a larger cut. Only Trump appointee Christopher Miran dissented, calling for a 50 bps reduction. Notably, Fed governors Michelle Bowman and Christopher Waller resisted joining the more dovish camp, dampening speculation of a shift toward aggressive easing. “There wasn’t widespread support at all for a 50 bps rate cut today,” Powell said.

Fresh projections offered a mixed outlook. Ten FOMC participants expect at least two additional 25 bps cuts before year-end, while nine anticipate just one more. Miran’s stance skewed the balance: his 2025 dot stood at 2.875%, implying support for a 50 bps cut at every meeting. The 2026 and 2027 median dots landed at 3.4% and 3.1% respectively, in line with expectations.

FOMC September Decision: Fed Cuts Rates 25 bps

Powell pointed to softening in the labor market as a key factor behind the move. Furthermore, he argued that inflation risks have “diminished a little bit” and that the Fed’s priority was to guard against job market deterioration. Still, he declined to validate market pricing for rate cuts, though he acknowledged policymakers monitor those expectations.

Traders continue to price in about 44 bps of additional easing by year-end, skewed closer to two further cuts. The October 3 non-farm payrolls report looms large: if job weakness persists, markets expect the Fed to act again at its October 29 meeting, with another move possible in December. A rebound in hiring could delay or derail that path.

Market reaction remained measured. The dollar strengthened modestly, reflecting a pullback from more dovish expectations leading into the meeting. Equities also held firm as dip buyers stepped in, suggesting confidence that the Fed’s policy stance largely matched what markets had anticipated.

For now, the Fed has left the burden on economic data to confirm or challenge market bets. With officials divided on the pace of cuts and Powell underscoring caution, the path ahead depends less on the dots than on the data.

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