The Federal Reserve is expected to trim interest rates after reports signaled a weakening labor market.
After nine months of staying on the sidelines, the Federal Reserve on Sept. 17 announced a quarter-percentage-point cut, likely the first in a series of reductions to usher in lower borrowing rates for consumers.
The rate cut – the Fed’s first since late 2024 – lowers the Fed’s benchmark interest rate to a range of 4% to 4.25%. Economists largely expect at least one more reduction this year.
Typically, the Fed hikes rates or keeps them steady to tame inflation. The central bank lowers rates to juice the economy. While the Fed previously held back on rate cuts due to inflation concerns, a series of disappointing jobs reports showed a weakening labor market.
While there are signs that tariffs are starting to show up in consumer prices, Powell previously said a “reasonable base case” is that tariffs spur a one-time price shift rather than a more persistent inflationary effect.
New Fed Governor Stephen Miran dissented, saying he preferred half-percentage-point cut.
It was the first meeting to include Miran, President Donald Trump’s pick to fill a vacancy on the Federal Reserve board of governors. He was narrowly confirmed on Sept. 15. Fed Governor Lisa Cook also participated in the meeting after an appeals court gave her permission to continue her duties as she battles Trump’s move to fire her.
Fed chair Jerome Powell will hold a news conference at 2:30 p.m. Eastern Time. Follow along for live updates.
The Fed began to hike interest rates in 2022 to cool rapid inflation, which hit a peak of 9.1% that June. Rates rose from nearly 0% to a two-decade high of 5.25% to 5.5% in July 2023.
The Fed began to trim rates in 2024 as inflation cooled, but has so far this year held rates steady as officials waited to see how Trump’s tariffs impact consumer prices.
– Bailey Schulz
The Fed is set to release its quarterly dot plot, which outlines where officials believe interest rates will move next.
The estimates “will be closely scrutinized,” Nationwide Chief Economist Kathy Bostjancic wrote in a note, “particularly to see” if the median interest rate estimate still calls for two quarter-point cuts by year’s end.
Economists are split on whether the Fed will cut rates two or three times this year, according to a Bloomberg survey.
The Fed could also shift its predictions for 2026. Last quarter, Fed officials projected just one quarter-point cut for the year. Bostjancic expects that to double to a total of 50 basis points cut, while the bond market is pricing in cuts totaling 75 basis points.
– Bailey Schulz
Fed Chair Powell is expected to hold a news conference at 2:30 p.m. Eastern Time, shortly after the Fed’s September decision is announced at 2 p.m.
You can watch below or through this link.
– Bailey Schulz
While most economists expect a quarter-point reduction in September, some Fed officials may push for a more aggressive rate cut.
Governors Christopher Waller and Michelle Bowman, Trump appointees who dissented for a cut in July, as well as newly appointed Stephen Miran could dissent for at least a half percentage point cut, according to a note from economist Michael Feroli of JP Morgan.
There’s also a chance a regional Fed president or two vote for steady rates, according to a Sept. 12 note from Deutsche Bank Research economists, who say the decision is “unlikely to be unanimous.”
The meeting has the potential to be the first with three dissenting governors since 1988.
– Bailey Schulz
The U.S. economy added a disappointing 22,000 jobs in August, according to the Bureau of Labor Statistics. The unemployment rate hit 4.3%, the highest level since October 2021, while revisions show the economy shed 13,000 jobs in June, the first month of job losses since December 2020.
Other reports also suggest the jobs market is weakening. The jobs report for July revealed gains for the previous two months were revised down by an eye-popping 258,000. Another report from the Bureau of Labor Statistics published Sept. 9 showed firms hired nearly a million fewer workers than previously estimated in the 12-month period ending in March.
Trump ordered the firing of U.S. Commissioner of Labor Statistics Erika McEntarfer shortly after the weak July jobs report was published, accusing her without evidence of manipulating the data.
– Bailey Schulz, Andrea Riquier
Consumer prices accelerated modestly in August at 2.9%, according to the Labor Department, while core inflation ‒ which excludes more volatile items like food and energy ‒ held steady at 3.1%.
While inflation has cooled significantly since its 2022 peak of 9.1%, it remains above the Fed’s 2% target.
– Bailey Schulz, Andrea Riquier
Wall Street’s main indexes opened subdued on Sept. 17 ahead of the Fed’s widely anticipated decision.
The Dow Jones Industrial Average was up 0.47% Wednesday morning, while the tech-heavy Nasdaq slipped 0.38% and the benchmark S&P 500 was down 0.094%.
The Fed meeting will be a test of Wall Street’s recent rally, with the S&P 500 and the Nasdaq hitting record highs in the last six sessions, boosted by rate-cut expectations and revived enthusiasm around AI-stock-linked trading.
Investors say the resumption of Fed rate cuts can add to Wall Street’s rally, though such a boost would depend on whether lower interest rates could help the U.S. economy avoid a downturn.
– Reuters, Bailey Schulz
Tariffs pose a challenge to the Fed because they are expected to both increase consumer prices and curb growth, leaving the Fed torn between its dual mandate to support stable prices and maximum employment. Recent reports indicate the labor market is weakening while inflation remains above the Fed’s 2% target.
Recent economic data “pushes the FOMC (Federal Open Market Committee) into an uncomfortable position,” Scott Anderson, BMO Capital Markets’ chief U.S. economist, said in a Sept. 11 note.
– Bailey Schulz
The CME FedWatch tool suggests a 94% chance of a quarter percentage point cut in September and 6% chance of a half percentage point cut from the current range of 4.25% to 4.5%.
Fed funds futures markets are betting on three rate cuts total this year. More than 40% of economists in a recent Bloomberg survey agree, although the survey’s median respondent anticipates just two. Those respondents were divided on whether the second would happen in October or December.
– Bailey Schulz
An appeals court on Sept. 15 ruled that Fed Governor Lisa Cook can carry on her duties as she battles President Donald Trump’s attempt to remove her from the central bank in court.
The Trump administration has accused Cook of committing mortgage fraud by claiming two properties as her primary residence, and says this allows Trump to fire Cook “for cause.” Cook has denied wrongdoing and has not been charged with a crime.
Recent reporting by Reuters showed Cook has claimed her second property as a vacation home, and appears to counter the documents cited by Cook’s critics.
Trump’s unprecedented move to fire Cook – the first Black woman on the Fed’s board – has raised concerns over the central bank’s independence from politics. Trump has demanded the Fed make aggressive rate cuts, and in August said he was expecting to soon have a majority of appointees on its board who would lower interest rates.
– Bailey Schulz
The Senate on Sept. 15 confirmed President Donald Trump’s pick to join the Fed’s board of governors, just one day ahead of the two-day rate decision meeting.
Stephen Miran, chairman of the White House Council of Economic Advisers, is set to fill the empty seat left by former Fed Governor Adriana Kugler, who stepped down from the role in August. Both he and Cook will cast votes at the September meeting.
Miran’s appointment has spurred concerns over the Fed’s independence from politics. Trump has demanded the Fed make aggressive rate cuts, and in August said he was expecting to soon have a majority of appointees on its board who would lower interest rates.
Miran has maintained that he will be committed to preserving the Fed’s autonomy and told lawmakers he is “very independently minded.”
BMO Capital Markets deputy chief economist Michael Gregory expects Miran to call for at least a half percentage point cut.
“Amid the likely decision to cut rates by 25 bps (basis points), we’ll probably see at least one dissenting vote in favour of a larger reduction,” Gregory said in a Sept. 17 note.
– Bailey Schulz
The benchmark federal funds rate has remained unchanged at 4.25% to 4.5% since December, when the Fed last announced a quarter percentage point drop.
– Bailey Schulz
The Fed adjusts interest rates to support stable prices and maximum employment.
When inflation is high, the Fed can raise rates to make borrowing more expensive and cool economic activity. When the labor market is weak, cutting rates can promote economic growth and hiring by making borrowing less expensive.
– Bailey Schulz