Central Bank maintains benchmark interest rate constant for the fifth consecutive meeting, against President Trump's urging
The Federal Reserve (Fed) is contemplating a potential interest rate cut in September 2025, as indicated by recent comments from Chair Jerome Powell and the Federal Open Market Committee (FOMC) meeting.
The market's reaction to the FOMC announcement and Powell's comments suggests a September rate cut is less likely, but this stance may change depending on upcoming economic data. Two FOMC members, Michelle Bowman and Christopher Waller, have advocated for a 25-basis-point cut, arguing that it is necessary to support the economy.
Powell noted that the labor market is "broadly in balance and consistent with maximum employment," but recent employment reports have shown signs of weakness, with payroll growth significantly below forecasts. This labor trend is a major concern for the Fed, as it aims to avoid unnecessary damage to the job market.
Despite uncertainty over trade policy, inflation, and the labor market, Powell stated that the economy is in a solid position. However, inflation remains elevated, with consumer prices expected to increase due to higher tariffs. Inflation remains somewhat sticky in some areas, particularly service sector prices, complicating the timing and size of any cuts.
Some economists argue that persistent inflation pressures may delay cuts or reduce their magnitude unless labor conditions worsen further. The housing sector is facing a long-term housing shortage, but it's important to note that the Fed does not set mortgage rates, although they have an effect on them.
The Fed has maintained a restrictive stance with rates at 4.25%-4.5% since late 2024. The July FOMC meeting saw dissenters favoring an immediate cut, signaling internal debate as uncertainty about the economic outlook remains elevated.
The Fed will review key inflation and employment reports ahead of the September meeting, which are expected to heavily influence the final decision. Market sentiment and volatility indexes show increased optimism anticipating accommodation, but the Fed remains committed to adjusting policy only based on evolving economic evidence.
In summary, the Federal Reserve is leaning towards initiating interest rate cuts in September 2025 due to signs of a weakening labor market and moderated inflation, but the magnitude and timing remain contingent on upcoming economic data.
[1] LPL Financial chief economist Jeffrey Roach believes the committee will likely cut rates by a quarter point in September if economic conditions weaken. [2] Seema Shah, chief global strategist at Principal Asset Management, suggests that the odds are slowly gathering in favor of a September cut, but the incoming jobs data and inflation prints will likely hold the key. [3] Market tools show an approximately 80-96% probability of a 0.25% rate cut in September, reflecting a consensus shift fueled by recent economic data. [4] The FOMC will hold its next meeting on September 16 and 17, where rate cuts could occur. [5] The Fed emphasizes that it doesn't make decisions about future interest rate moves in advance, and its independence is at risk due to President Trump's pressure campaign.
- The potential September interest rate cut by the Federal Reserve is being widely discussed among economists, with LPL Financial chief economist Jeffrey Roach predicting a quarter-point cut if economic conditions weaken.
- Seema Shah, the chief global strategist at Principal Asset Management, believes that the odds are gradually increasing in favor of a September interest rate cut, but the incoming jobs data and inflation reports will likely be decisive factors.
- Market tools indicate an approximately 80-96% likelihood of a 0.25% rate cut in September, indicating a shift in consensus due to recent economic data.
- The FOMC's next meeting is scheduled for September 16 and 17, where it is possible to expect interest rate cuts.
- Despite the Federal Reserve's commitment to making decisions about future interest rate moves based solely on economic evidence, there are concerns about the Fed's independence, with some alleging that President Trump's pressure campaigns pose a risk to this independence.
- Economic factors such as taxes, assets, business, politics, and general-news will play a significant role in influencing the Fed's final decision regarding interest rate cuts in September 2025.
