The Federal Open Market Committee (FOMC) took its first monetary policy easing step of 2025 by cutting the benchmark interest rate by 25 basis points, bringing it to a range of 4.00%–4.25%. The decision, made during the September 16–17, 2025 policy meeting, came amid growing signs of an economic slowdown and uncertainty in the labor market.
Internal Tensions Behind the Decision
Although the decision was reached collectively, the minutes revealed sharp divisions among committee members. Some supported a more aggressive rate cut, while others remained cautious, arguing that inflationary pressures had not yet fully subsided.
The only member to formally dissent was Stephen Miran, who proposed a 50-basis-point cut, twice the final amount decided. Several other members favored a wait-and-see approach, seeking stronger economic data before committing to further easing.
Policy Outlook: More Room for Additional Cuts
A majority of policymakers expressed support for the possibility of two more rate cuts before the end of the year. However, some members questioned whether current inflation conditions and market expectations would allow for a looser policy stance.
The minutes also highlighted external challenges, including delays in economic data releases due to the U.S. government shutdown, which left policymakers with an incomplete and less timely view of economic conditions.
Impact on Financial Markets
1. Bond Market and Yields
The cautious tone of the minutes led markets to expect that the pace of rate cuts will be slower than initially projected. As a result, medium- to long-term Treasury yields could edge slightly higher, as investors anticipate the Fed will avoid overly aggressive easing.
2. Equity Markets and Risk Assets
The 25-basis-point cut signaled the Fed’s recognition of economic headwinds. However, this move may also disappoint investors who were hoping for faster easing. Still, the decision reinforces the perception that the central bank remains responsive to economic weakness.
3. Policy Strategy and Risks
The FOMC now finds itself walking a “narrow path”: cutting rates too quickly risks reigniting inflation, while moving too slowly could worsen the slowdown and increase pressure on the labor market. Meanwhile, global volatility and U.S. fiscal uncertainty add further challenges to the Fed’s future policy direction.
Critical Takeaway: A Compromise, Not a Consensus
The minutes make it clear that the FOMC’s decision represents a compromise rather than a full consensus. This moderate step aims to balance the dual objectives of curbing inflation and supporting economic growth.
Miran’s dissent signals that some members believe the Fed is moving too slowly in addressing the economic slowdown.
Looking ahead, the direction of Fed policy will depend heavily on core inflation data, wage pressures, inflation expectations, and key indicators of manufacturing and consumer activity. Communication from Fed officials — including Chair Jerome Powell’s upcoming speeches — will be crucial in gauging how dovish or hawkish the central bank’s stance will be in the coming months.