September FOMC meeting concludes with first rate cut of 2025
Labor concerns and persistent inflation have the Fed penciling in up to two additional cuts by the end of 2025.
Amid a softening labor market and rising inflation, the Federal Reserve (Fed) elected to lower interest rates by a quarter of a percent at the conclusion of the September 16-17 Federal Open Market Committee (FOMC) meeting and see up to two additional cuts by the end of 2025.
After holding rates steady for the first eight months of the year, this first rate cut of 2025 by the Fed brings the federal funds rate target range down to 4%-4.25%. The FOMC post-meeting statement acknowledged that job gains have slowed, the unemployment rate has ticked up, and inflation has also bumped up and remains “somewhat elevated.”
“Today’s decision, along with the possibility of two more cuts this year and another in 2026, was largely driven by recent signs of labor market weakness,” said Raymond James Chief Investment Officer Larry Adam. “What is surprising, though, is that the Fed’s updated economic projections don’t reflect the kind of slowdown you'd typically associate with multiple rate cuts.”
Adam noted that the projections suggest the Fed sees these cuts as “risk management” – and not a reaction to sustained deterioration in the economy. It also highlights the uncertainty and range of views among Fed officials about the path forward.
A closer look at the dot plot shows dispersion among the FOMC, with nine members seeing one additional cut this year, and the remaining 10 anticipating two cuts. The dot plot also projects just a single cut in 2026, down from two projected cuts in June’s dot plot, and one rate reduction in 2027.
“The dot plot shows that Fed members are worried about economic growth going into the last quarter of the year,” said Raymond James Chief Economist Eugenio Alemán. “They’re also concerned about potentially higher growth next year, and that’s the reason why they are more hawkish regarding rate cuts next year, which is in line with our view on the US economy.”
The Summary of Economic Projections (SEP) showed a slightly stronger estimate for real GDP in 2025, up 1.6% compared to 1.4% in its June estimate for the fourth quarter of this year. The estimate for 2026 was also increased by 0.2 percentage points, to 1.8%. For 2027, the estimate for real GDP growth increased by 0.1 percentage point, to 1.9%.
The estimate for the rate of unemployment was unchanged for this year, at 4.5%, but for 2026 it was lowered to 4.4% compared to a rate of 4.5% in the June SEP. The rate of inflation for the PCE price index was unchanged, at 3.0% for this year, but increased to 2.6% in 2026 from 2.4% in the June SEP.
The next FOMC meeting takes place October 28-29, 2025.
All expressions of opinion reflect the judgment of the Raymond James Chief Investment Officer and the Raymond James Chief Economist and are subject to change.
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