Fed's Tightrope Tango: Rate Cut Ignites Jobs-Inflation Showdown

With near-unanimous support except for Governor Stephen, the Federal Reserve's September 16–17, 2025, FOMC meeting produced a 25 basis point rate cut to 4.0–4.25%. Miran's disagreement supporting a bigger 50 basis point cut challenged officials who struggled to balance labor market risks against ongoing inflation and finally chose the smaller cut. Due to worries about stagnation in the direction of the 2% inflation objective. This decision underlines growing rifts among Committee members as certain ones were concerned about employment softening, while others gave priority to inflation monitoring.

Labor market indicators were really important; officials observed reduced job growth, a rise in the unemployment rate to 4.3% in August, and a substantial decline in March 2025 will see the revision of over 900,000 payrolls. Downside risks highlighted included diminished labor dynamism, sector-concentrated expansion, and increased joblessness among at-risk communities. By contrast, inflation continued to be a major concern with consumer prices at 2.7% and core PCE at 2.9% in August, compounded by continued tariff pressures. -muted, posed upside risks to price stability.

Most members foresee additional relaxation looking ahead through 2025, consistent with market wagers on a 96% chance of another 25 basis point drop in October. Policy is still data-dependent, with no defined route, and financial circumstances were considered "not particularly restrictive." With reserves projected at $2.8 trillion by early 2026, the Committee will continue balance sheet runoff, highlighting the Fed's continuing challenge to negotiate employment support amid inflation concerns.