Federal Reserve Cuts Interest Rates by 25 Basis Points

On Thursday, September 18th, the Federal Reserve announced a 25-basis-point cut to interest rates, lowering the target range for the federal funds rate to 4%-4.25%. This move restarts the rate-cutting cycle that had been paused since December of last year. New Fed Governor Stephen I. Miran dissented, preferring a larger 50-basis-point cut.

The dot plot reveals a divergence of views among Fed officials. Out of 19 officials, 9 expect two more rate cuts in 2025, while two expect one cut, and six anticipate no further cuts.

Federal Open Market Committee (FOMC) Statement

Recent indicators suggest that growth of economic activity has slowed in the first half of this year. Job gains have moderated, and the unemployment rate has edged up slightly but remains low. Inflation has rebounded and remains elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated, and the Committee is attentive to risks to its dual mandate and believes that downside risks to employment have increased.

In support of these goals, and given changes in the balance of risks, the Committee decided to lower the target range for the federal funds rate to 4%-4.25%. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, evolving outlook, and the balance of risks. The Committee will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities. The Committee is firmly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller. Voting against was Stephen I. Miran, who preferred at this meeting to lower the target range for the federal funds rate by 50 basis points.

Analysis of the Decision

The Fed's decision reflects a mix of concerns about economic growth and inflation. While the labor market remains relatively strong, there are signs of a slowdown. Inflation also remains above the central bank's 2% target. By cutting interest rates, the Fed hopes to stimulate economic activity while managing inflationary pressures. This decision highlights the inherent challenges in navigating a complex economic landscape.