Key Takeaways
- The Fed Lowered Interest Rates 25 bps, as Expected
- Fed Chair Powell Says the Risk to Employment Has Grown Worse than the Risk of Inflation
- The Fed's Latest "Dot Plot" Indicates 2 More 25 bps Rate Cuts in 2025
Wednesday, September 17, 2025
The Federal Open Market Committee (FOMC) today reduced the Fed funds rate by 25 basis points (bps), as expected. It said the rising downside risk to employment has, at least for now, superseded the increase in goods costs, which the Fed sees as the primary reason for the rise in inflation. Thus, with risks moving toward equal between inflation and labor, the FOMC moved rates closer to neutral.
Notes on the Latest Fed Decision
We now have interest rates between 4.00-4.25% for the first time since December of 2022, when rates were moving decisively in the other direction. All 12 voting members agreed with the 25 bps cut save its newest member, President Trump’s chief economist Stephen Miran, who was confirmed to the FOMC by the U.S. Senate just yesterday afternoon and voted for a 50 bps cut. He and Trump have both advocated slashing interests rates going forward.
The Fed also continues its policy of reducing its holdings of Treasury and mortgage-backed securities as it attempts to roll off its massive $6.6 trillion in assets. There had been some speculation that mortgage securities might be held longer to help shore up the housing market, but Powell excused this by citing the Fed is cutting the balance sheet “quite marginally now.”
In terms of unemployment, Fed Chair Jerome Powell said in the press conference directly following the Fed statement that this had more to do with immigration reform than tariffs, at this stage. Powell said there was “great uncertainty” regarding AI’s effect on the labor market, and that there “may be something there.”
Goods inflation is seen to have contributed +0.3% or +0.4% to overall inflation metrics over the past year. Powell did not see evidence that tariffs were being passed fully onto the consumer at this point, however. In fact, he mentioned the pass-through to the consumer was smaller and slower than many had expected.
Although Powell said a couple times that the Fed is not on a “pre-set course” regarding interest rates, but did forecast +3.6% by December of this year (indicating two more 25 bps cuts), which is 10 bps lower than we saw in June. Perhaps Stephen Miran’s work is evident here, as well: one “dot” on the Fed’s latest “dot plot” is well below the others.
While it’s true one — or even three — 25 bps cuts were not going to “rescue the labor market,” Powell said the “policy path does matter.” Ultimately, the Fed Chair sees a “two-sided risk” to monetary policy at present, but that tariff-related inflation will continue to move up in goods prices — and will be temporary.
How the Stock Market Reacted to the Rate Cut
Ahead of the monetary policy decision, major market indexes were flat with where they were earlier today, with the Dow and small-cap Russell 2000 just modestly in the green and the Nasdaq and S&P 500 marginally in the red. The Fed numbers and Powell’s explanation fairly roiled everything for about an hour, but things shortly thereafter returned to their earlier levels. The Dow closed +0.57% today, the S&P 500 -0.1%, the Nasdaq -0.33% and the Russell +0.18%.
Tomorrow, the fun continues with Weekly Jobless Claims and a new Philly Fed manufacturing survey on the docket ahead of the opening bell, with Leading Economic Indicators (LEI) for August coming out slightly afterward. For now, it’s nice that the Fed has gotten off the schneid regarding interest rates, so to speak — if for no other reason that to be able to focus on some other things a while.
Questions or comments about this article and/or author? Click here>>
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Fed Sees "Two-Sided Risk" in Lowering Interest Rates
Key Takeaways
Wednesday, September 17, 2025
The Federal Open Market Committee (FOMC) today reduced the Fed funds rate by 25 basis points (bps), as expected. It said the rising downside risk to employment has, at least for now, superseded the increase in goods costs, which the Fed sees as the primary reason for the rise in inflation. Thus, with risks moving toward equal between inflation and labor, the FOMC moved rates closer to neutral.
Notes on the Latest Fed Decision
We now have interest rates between 4.00-4.25% for the first time since December of 2022, when rates were moving decisively in the other direction. All 12 voting members agreed with the 25 bps cut save its newest member, President Trump’s chief economist Stephen Miran, who was confirmed to the FOMC by the U.S. Senate just yesterday afternoon and voted for a 50 bps cut. He and Trump have both advocated slashing interests rates going forward.
The Fed also continues its policy of reducing its holdings of Treasury and mortgage-backed securities as it attempts to roll off its massive $6.6 trillion in assets. There had been some speculation that mortgage securities might be held longer to help shore up the housing market, but Powell excused this by citing the Fed is cutting the balance sheet “quite marginally now.”
In terms of unemployment, Fed Chair Jerome Powell said in the press conference directly following the Fed statement that this had more to do with immigration reform than tariffs, at this stage. Powell said there was “great uncertainty” regarding AI’s effect on the labor market, and that there “may be something there.”
Goods inflation is seen to have contributed +0.3% or +0.4% to overall inflation metrics over the past year. Powell did not see evidence that tariffs were being passed fully onto the consumer at this point, however. In fact, he mentioned the pass-through to the consumer was smaller and slower than many had expected.
Although Powell said a couple times that the Fed is not on a “pre-set course” regarding interest rates, but did forecast +3.6% by December of this year (indicating two more 25 bps cuts), which is 10 bps lower than we saw in June. Perhaps Stephen Miran’s work is evident here, as well: one “dot” on the Fed’s latest “dot plot” is well below the others.
While it’s true one — or even three — 25 bps cuts were not going to “rescue the labor market,” Powell said the “policy path does matter.” Ultimately, the Fed Chair sees a “two-sided risk” to monetary policy at present, but that tariff-related inflation will continue to move up in goods prices — and will be temporary.
How the Stock Market Reacted to the Rate Cut
Ahead of the monetary policy decision, major market indexes were flat with where they were earlier today, with the Dow and small-cap Russell 2000 just modestly in the green and the Nasdaq and S&P 500 marginally in the red. The Fed numbers and Powell’s explanation fairly roiled everything for about an hour, but things shortly thereafter returned to their earlier levels. The Dow closed +0.57% today, the S&P 500 -0.1%, the Nasdaq -0.33% and the Russell +0.18%.
Tomorrow, the fun continues with Weekly Jobless Claims and a new Philly Fed manufacturing survey on the docket ahead of the opening bell, with Leading Economic Indicators (LEI) for August coming out slightly afterward. For now, it’s nice that the Fed has gotten off the schneid regarding interest rates, so to speak — if for no other reason that to be able to focus on some other things a while.
Questions or comments about this article and/or author? Click here>>