Federal Reserve update for September 2025

Presented by Marc Aarons

 

The Federal Reserve recently wrapped up its September 2025 meeting amid concerns about the labor market and persistent inflation. Given the rising economic uncertainty, I wanted to share a quick recap of what was announced and some insight into potential impacts.

 

1. A rate cut after nine months.

For the first time since December 2024, the Federal Reserve reduced its benchmark interest rate, lowering the target range by a quarter percentage point to 4.00%-4.25%. This decision comes after the Fed held rates steady for five consecutive meetings and reflects growing concerns about the labor market.

While most policymakers supported the quarter-point cut, White House economic adviser Stephen Miran, who was confirmed onto the Fed Board of Governors on Monday, September 15th, dissented, favoring a more aggressive half-point cut.

Miran’s vote also marks the second straight meeting with a dissent, highlighting ongoing debate about the pace and scale of rate adjustments. Before Christopher Waller and Michelle Bowman, two members of the Fed’s Board of Governors, dissented at the July Fed meeting, a dissent had not occurred at a meeting since 1993.

2. A softening labor market prompted action.

The Fed’s decision was heavily influenced by signs of weakening in the job market. In August, just 22,000 new jobs were added — less than a third of the projected 75,000 — and the unemployment rate rose to 4.3%, its highest level since 2021. Job gains have averaged just 29,000 per month over the past quarter, a pace Federal Reserve Chairman Jerome Powell suggested may not be enough to keep the unemployment rate from rising.

In addition, the Bureau of Labor Statistics recently revised past data to show that the economy created 911,000 fewer jobs than reported during the 12-month period ending in March 2025. These trends have raised concerns that the labor market may weaken further without policy support.

Powell noted that risks to employment have “increased,” meaning there’s a growing likelihood of slower job growth, higher unemployment, or weaker wage gains. Powell also described the current labor market as “less dynamic” than earlier this year.

3. Inflation seems elevated.

Despite concerns around employment, inflation hasn’t yet returned to target. Core inflation (excluding food and energy) held steady at 3.1% in August, still above the Fed’s 2% target. In its post-meeting statement, the Fed acknowledged inflation has “moved up and remains somewhat elevated,” a concern Powell also highlighted in his press conference. It emphasized that it remains committed to bringing inflation down over time using tools like interest rate adjustments, if needed, and balance sheet reductions.

Powell noted that goods inflation has increased recently, while services inflation is easing. The Fed now sees short-term inflation risks as tilted to the upside, meaning officials believe there’s a greater chance inflation could rise faster than expected. Even so, growing risks to employment were the deciding factor in this rate cut.

Tariffs are believed to contribute to price pressures, but Powell reiterated that their inflationary impact is likely temporary.

4. The economic outlook modestly improved.

The Fed now expects real gross domestic product, the inflation-adjusted value of goods and services produced in the U.S, to grow 1.6% in 2025, a slight upward revision from earlier projections of 1.4%. That said, officials continue to describe overall economic activity as having “moderated” and expressed ongoing uncertainty about the outlook. They remain focused on balancing risks to inflation and employment.

5. Two more rate cuts are possible this year. 

According to the Fed’s updated projections (the “dot plot”), some policymakers foresee two more rate cuts before the end of 2025. Fed officials were notably divided on the rate path beyond that, with a wide range of views for 2026 and beyond. While markets had largely anticipated this path, the Fed’s official projections reinforced expectations that it’s entering a more accommodative phase.

Still, Powell emphasized that future decisions will depend on incoming data, particularly inflation and employment trends.

6. What could this mean for your finances?

Here are a few practical takeaways:

• Borrowing costs may ease – With this rate cut and more likely to come, mortgage rates, auto loans, and other lending rates could gradually decline.
• Savings rates may dip – Banks typically follow the Fed’s lead, so yields on high-yield savings accounts and CDs may decrease over time.
• Market volatility may persist – Sensitivity to inflation data and Fed signals may keep volatility elevated.
• Strategic planning matters – Whether investing, borrowing, or saving, a proactive approach can be helpful in a shifting environment.

 

If you have questions about how the Fed’s decisions could impact your personal financial plan, don’t hesitate to reach out. I’m always here to help.

Please don’t hesitate to reach out with any questions or concerns.

Marc Aarons may be reached at 714-887-8000 or Email Marc

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