U.S. FOMC Meeting (September 16-17, 2025)

The Fed delivers on a 25 bps cut, and signals further easing in the months ahead 

• The Federal Reserve Open Market Committee (FOMC) reduced the federal funds rate by 25 basis points (bps), lowering the target range to 4.00%-4.25%. The move comes after an extended 'pause', where policymakers had held the policy rate fixed at each of the five prior meetings. 
  
• There were a few changes to the statement, with a notable call out on the characterization of the labor market, which now reads as "job gains have slowed, and the unemployment has edged up" versus the prior wording of "…the unemployment rate remains low and labor market conditions remain solid". The Committee also noted that "downside risks to employment have risen". 
  
• Accompanying the statement, the FOMC also released a revised set of economic forecasts, known as the "Summary of Economic Projections" (SEP). The SEP represent the median of the individual forecasts submitted by each of the FOMC participants. Relative to the June update:
  
  • The median projection for real GDP growth – as measured on Q4/Q4 basis – was upgraded to 1.6 (previously 1.4%) in 2025 and 1.8% in 2026 (previously 1.6%), while the long-term outlook remained unchanged at 1.8%.
    
  • The median year-end unemployment forecast was unchanged for 2025 at 4.5%, while 2026 and 2027 were each nudged lower by a tenth of a percentage point to 4.4% and 4.3%, respectively. 
    
  • Core PCE inflation – the Fed's preferred inflation gauge – was unchanged at 3.1% for 2025, while 2026 (2.6% from 2.4%) was revised slightly higher. 2027 was left unchanged at 2.1.%
    
  • Lastly, the median projection for the federal funds rate was lowered by 25 bps to 3.6% for 2025, corresponding to a target range of 3.5% to 3.75%, or 50bps lower than the current setting. Both 2026 and 2027 were also lowered by 25bps to 3.4% and 3.1%, respectively. The long run "neutral" rate remained unchanged at 3.0%. 
    
• Eleven of the twelve voting members voted in favor of today's decision. President Trump's new Fed appointee, Stephen Miran, was the one dissent, who preferred a 50 bps cut.

Key Implications

• Today's decision came as no surprise. Since the last FOMC meeting in July, the labor market has shown clear signs of softening and (as highlighted in the statement) has become the greater source of tension within the Fed's dual mandate of maximum employment and price stability. Job growth has slowed to a near stall-speed while the unemployment rate hit a new cyclical high of 4.3% in August – putting it at the upper end of the FOMC's range consistent with maximum employment. 
• Beyond the median forecast on the fed funds rate shifting lower, the FOMC also made a subtle change to the wording in the statement, dropping the language on "the extent and timing of additional rate adjustments", further emphasizing that additional rate cuts are likely on the way over the coming months. Markets interpreted the statement as slightly dovish, with two-year Treasury yields dropping 5 bps to 3.50% following the release. Stay tuned, Chair Powell is on deck to speak at 2:30 PM ET.    

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