FOMC Commentary – September 17, 2025

The Federal Open Market Committee (FOMC) voted to lower the Federal Funds rate target range by 25bps, from 4.25%-4.5% to 4%-4.25%. The context provided for this move was as important as the interest rate cut itself, slowing employment growth but continued inflation at levels “somewhat” higher than desirable. It is significant that the FOMC opted to continue its run-off of the balance sheet (the reversal of the Quantitative Easing of the pandemic years), thereby reaffirming that monetary policy remains modestly restrictive despite the lower target rate. (Juicy) Details about any substantial divergence of opinion in the FOMC regarding the relative risks of the dual mandate for full employment and price stability will have to wait until the release of the minutes of the meeting in three weeks, with possibly a preview in Federal Reserve speeches over the next few days.  However, the FOMC statement itself highlighted the dissent of new Federal Reserve Board member Stephen Miran, who voted for a larger 50bps rate cut.  Perhaps surprisingly, Miran was not joined by other members of the FOMC (Waller, Bowman) who were also thought to be leaning towards a more aggressive reduction in the target rate. It is likely that a push for a bigger move at this meeting was diffused by the FOMC forecast, contained in the separately published Summary of Economic Projections (SEP), for two more 25-bps rate cuts this year.  It should certainly be understood that an intention to cut rates by 75bps over three months while the inflation rate remains close to 3% signals a growing concern over economic growth. Nevertheless, the economic growth projections in the September SEP are little changed from the projections in the June SEP.   Perhaps the best way to put this all together is to recognize that the “two more interest rate cuts this year” that will be receiving banner headlines is, according to the SEP itself, a far-from-unanimous viewpoint among FOMC members.  

As expected, this was not an easy press conference, providing enough fireworks to merit a bullet-point listing of the cherry bombs, roman candles, and various colored sparklers:

• “The marked slowdown in the labor market is unusual,” said Chairman Powell.  Little explanation for such a big statement. “Unusual” relative to what?

• “Risks to inflation have shifted to the upside and risks to employment have shifted to the downside.” This mantra, in various forms, was repeated by Chairman Powell several times, with a clarity that he has not expressed in previous press conferences. He also included the perhaps unnecessary explanation that "this is a challenging situation.” Translation: Be happy that you don’t have this job.  When asked at one point what might lead him to leave the job, the answer was understandably dismissive.

• The very first reporter question was about Stephen Miran keeping his position at the White House, and the implication for Federal Reserve independence. A cherry bomb if there ever was one, with the easily anticipated result:  Chairman Powell welcomed the new member (no name used) and, beyond that, had nothing to say.  Later, he was asked about the Lisa Cook court case and its implications for Federal Reserve independence, a question for which he also had no comment, amplified by the fact that it would be inappropriate to discuss a court case.  It begs the imagination  that reporters hope that in asking these questions often enough, they might finally get a “Network”-like break in the Chairman’s demeanor: “I’m mad as hell and I’m not going to take this anymore.”  (RIP Peter Finch.)

• “Over the course of this year, we have kept our policy at a restrictive level . . . we were able to do that because of the strength of the labor market.”  But, said Powell, the FOMC sees a very different labor market now, necessitating a shift in policy.  It was surprising that no one asked a question about stagflation at this point.  

• "There wasn’t widespread support for a 50bps cut today.” Was that an ever-so-slight Cheshire cat grin? Chairman Powell delivered this statement with confidence, without much hesitation, and with very little equivocation.  A crowning achievement for him, under the circumstances.

• “Are the dynamics of a downturn already in place?” This question allowed Chairman Powell to state that the reason for the interest rate policy shift was not the forecast, but a change in the perception of the risks to the forecast.  In the view of the FOMC, the risks of higher and persistent inflation are somewhat less, while the risks to job creation are significantly changed (higher).

• A question that challenged Chairman Powell’s statement that the labor market slowdown is attributable to immigration led him to clarify that he meant it had more to do with immigration than with tariffs.  However, at this point, he believes that declining labor demand is also leading to reduced employment.  This two-step dance was repeated later (see below.)

• “Are we in a meeting-to-meeting, data point by data point, approach, or are we in a process of moving towards neutral?”  Chairman Powell seemed to have stated both and was astutely asked for clarification.  The answer was long, but not clear, and probably confirmed that he wanted it to be both.  More usefully, the Chairman chose to elaborate upon the dispersion of the interest rate projection.  The uncertainty over future interest rates reflected in the SEP is a reason to see the process as a work in progress that will be amended and refined in subsequent meetings.  If inflation accelerates, the interest rate path sketched out in the SEP could change.

• The Bureau of Labor Statistics (BLS) revisions, including those to the benchmark level, were just what the Federal Reserve was expecting, said Powell.  And the BLS needs to do a better job, with a better model.  And figure out how to get the survey response rate up. Not quite throwing the BLS under the bus, but not giving them any shade either.  Would earlier confirmation of the downward revisions have changed the FOMC's previous decisions?  “We have to live life looking through the windshield, not the rear view mirror,” said Powell. 

• Scott Bessent says the Federal Reserve has “mission creep and institutional bloat.” How do you feel about that?  My goodness, what do reporters think they will get from questions like this in such a charged political environment?  However, Chairman Powell did an admirable job of detailing his willingness to accept “constructive criticism.”

• The impact of AI on the labor market right now is probably a factor, but not “driving” the near-term outlook.

• Tariffs are mostly not being paid by exporters, but are being paid by companies that "sit between the exporters and the consumer." For example, retailers, not end-buyers. “But the evidence is very clear that there is some pass-through.” This was the most cautionary note about the inflation outlook.

• "One of your new colleagues comes from a world where everything is seen through politics,” said a reporter. Stephen Miran originally comes from a different world and has impeccable academic qualifications. It is unlikely that this question bothers him very much, even if it should.  

• The Financial Times expressed surprise about the strong consensus on the action taken today and the wide divergence on the outlook for next steps. In explaining this, Chairman Powell did very little explanation. "There is a range of views in the dots, and that is not surprising given the unusual challenges we face.”  Once again, it is fair to question the use of the word “unusual."  It is not unusual for the dual mandate to be challenging. 

• "The labor force is not growing very much. This is why employment has slowed down so much.  But demand for labor has also fallen off.” Again, a reiteration by Chairman Powell of the debate and confusion over the sources of the swift deceleration in employment growth. The problem for Chairman Powell and the FOMC is that an interest rate cut can potentially address a slowdown in demand. Still, it cannot do much about employment weakness caused by secular labor force dynamics.  More than once in this press conference, it seemed as though Chairman Powell was reminding himself that there has to be a reason for an interest rate cut, and if employment weakness is not caused by falling demand (which can be influenced by interest rates), then there is a problem of logic unless the logic is to reduce the cost of US government borrowing.

• “How concerned are you about the impact of interest rates on the housing market?’ Chairman Powell seemed to believe that the Fed can influence housing market activity, via the influence on mortgage rates, but that this rate cut is unlikely to have a major effect on what is, at the core, a long-term secular problem related to a lack of supply.

• "Forecasters don’t have great confidence in their forecasts.” Chairman Powell’s favorite Roman Candle.  

• The penultimate question was about Stephen Miran’s views on the “third mandate” of moderate long-term interest rates, a reference to recent statements by Miran citing a more complete reading of the Federal Reserve’s stated responsibilities. This question yielded a very uncomfortable non-response. The question itself was convoluted and most likely not something that Chairman Powell wanted to address with so little time left in the press conference. It is also highly probable that the Chairman was getting tired of hearing Stephen Miran’s name, especially given his lone-wolf status (at this meeting at least) in both the FOMC decision and the longer-term outlook. Veterans of Q&A sessions know that it’s always the first question and the last that are the gotchas.