Fed Consensus on Rate Cuts, But Divisions Remain
Federal Reserve officials demonstrated a strong inclination to reduce interest rates during their September meeting, with the primary debate centering on the total number of cuts anticipated by the end of 2025, according to minutes released Wednesday. The Federal Open Market Committee (FOMC) showed near unanimity that the federal funds rate should be lowered due to labor market softness. Yet, members were split between endorsing two or three rate reductions within the year, including the 25 basis point cut approved on September 16-17.
“In considering the outlook for monetary policy, almost all participants noted that, with the reduction in the target range for the federal funds rate at this meeting, the Committee was well positioned to respond in a timely way to potential economic developments.” — FOMC minutes
Narrow Vote Margin and Varied Projections Among Officials
The meeting’s voting reflected a closely divided committee. Out of the 19 officials participating, 12 hold voting rights, and the full FOMC approved the quarter-point rate cut with an 11-1 vote. Despite this, projections revealed a split view on future policy: a slim 10-9 majority supported two additional quarter-point cuts before year-end, with expectations of one more cut in both 2026 and 2027, stabilizing the funds rate near 3% long term. The target range for the federal funds rate was consequently adjusted to 4%–4.25%.
Governor Miran Advocates More Aggressive Easing
Newly appointed Governor Stephen Miran, who joined the FOMC just hours before the September session, cast the sole dissenting vote favoring a more aggressive half-point rate cut. In subsequent public statements, Miran identified himself as the lone “dot” supporting a substantially faster easing path compared to his colleagues.
Labor Market Weakness and Inflation Outlook Shape Policy
Committee members expressed growing concern over labor market deterioration, which shifted the balance of risks toward easing monetary policy. While some participants advocated caution, citing financial conditions that may not yet be restrictive, the consensus leaned toward further easing given the increased downside risks to employment and diminished upside inflation risks.
“Most participants observed that it was appropriate to move the target range for the federal funds rate toward a more neutral setting because they judged that downside risks to employment had increased and that upside risks to inflation had either diminished or not increased.” — FOMC minutes
The discussion also touched on tariffs, with the committee generally concluding that President Donald Trump’s levies, while boosting prices earlier in the year, were unlikely to cause sustained inflation.
Market Survey Alignment and Data Limitations Amid Shutdown
The Fed’s policy stance aligned closely with a survey of primary dealers, where nearly all respondents anticipated the quarter-point cut in September, and roughly half expected an additional cut in October. Most survey participants forecasted at least two cuts by year-end and about half anticipated three. However, the ongoing government shutdown presents significant challenges, as key economic data from agencies such as the Labor and Commerce departments are unavailable. If the impasse persists until the FOMC’s October 28-29 meeting, policymakers will face decisions with limited economic visibility.
FinOracleAI — Market View
The September FOMC minutes reveal a Federal Reserve poised to ease monetary policy amid labor market deterioration and subdued inflation risks. The committee’s narrow majority favors a gradual, two-step rate cut approach through year-end 2025, though dissenting views advocate more aggressive easing.
- Opportunities: Gradual rate cuts could support economic growth by easing borrowing costs, potentially stabilizing employment conditions.
- Risks: Data blackout from the government shutdown increases uncertainty, complicating timely and informed policy decisions.
- Market expectations: Pricing currently implies near certainty of rate cuts at the upcoming meetings, though the pace may adjust based on data availability.
- Inflation outlook: Tariff-related inflation pressures appear transitory, supporting the case for cautious easing.
Impact: The Fed’s inclination to reduce rates reflects growing concerns over labor market softness and shifting inflation dynamics, signaling a more accommodative stance that may underpin market stability but remains sensitive to evolving economic data availability.
