// Balancing Inflation and Jobs //
In its statement, the Fed acknowledged that the U.S. economy has shown "modest slowing," highlighting softer job creation and an unemployment rate that climbed to 4.3% in August, the highest since late 2021. Inflation, meanwhile, has edged higher and remains above the Fed ’ s comfort zone.
Fed Chair Jerome Powell described the move as a "risk-management cut," stressing that the economy is not in recession but faces unusual challenges. "Both labor supply and demand are cooling simultaneously, which is a rare phenomenon," Powell said at his press conference. He added that current policy is shifting from "moderately restrictive" toward a more neutral stance, suggesting that monetary tightening is no longer as forceful a brake on growth.
Some analysts interpreted Powell ’ s comments as an admission that economic momentum is faltering, while others emphasized the Fed ’ s caution in framing the cut as an insurance measure rather than the beginning of a full easing cycle. Allianz Trade chief economist Dan North argued: "This is not just risk management — it ’ s a deliberate steering of the economy."
// Dot Plot Reveals Divisions //
The Fed ’ s updated "dot plot" projections revealed a split outlook among policymakers. Ten of 19 officials expect two more rate cuts this year, nine foresee only one, while one participant opposed any reductions at all. One particularly dovish projection penciled in a total of 125 basis points of easing in 2025 — widely assumed to reflect Miran ’ s position.
Looking ahead, officials forecast just one additional cut in 2026, fewer than markets had priced in, with the longer-run neutral rate median holding at 3%. Six policymakers argued for an even lower neutral rate, underscoring uncertainty about how much policy tightening is still needed to contain inflation without derailing growth.
// Political Pressure and Markets //
The rate decision followed months of political tension, with President Donald Trump publicly urging the Fed to slash borrowing costs more aggressively to support housing and ease government debt servicing. Miran ’ s appointment was viewed as part of Trump ’ s effort to exert more influence over monetary policy. At the same time, a court blocked Trump ’ s attempt to remove Democratic Governor Lisa Cook, who also voted for the quarter-point cut.
Markets reacted with mixed signals. The Dow Jones Industrial Average climbed 260 points, or 0.6%, to close at a record 46,018.32. The S&P 500 slipped 0.1% to 6,600.35, while the Nasdaq Composite dropped 0.3% to 22,261.33.
High-flying tech stocks bore the brunt of profit-taking, with Nvidia, Oracle, Palantir, and Broadcom closing lower. By contrast, rate-sensitive sectors gained, boosting blue-chip names such as Walmart, JPMorgan, and American Express. Smaller companies also benefited, with the Russell 2000 up 0.18%, reflecting their reliance on variable-rate financing.
// Risks Ahead //
Despite resilient consumer spending and stronger-than-expected retail sales, the Fed remains wary of declaring victory over inflation. Powell emphasized that risks are finely balanced: "There is no risk-free path, and the best choice is far from obvious."
Economists say the September cut shows the Fed prioritizing labor market risks over inflation fears, with tariffs fading as a near-term concern. Christopher Rupkey of FWDBONDS noted: "The Fed has not hit the panic button. Instead, they are moving in small, deliberate steps, focusing on hiring slowdowns rather than inflation shocks."
With two more FOMC meetings left in 2025, markets are betting heavily on at least one additional cut, if not two. The Fed ’ s path forward will hinge on whether inflation moderates and whether signs of labor market weakness turn into broader economic stress.
