Rising Labor Market Risks Unite the Fed to Deliver 25bps Cut
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  • The Fed cut policy rates by 25bps at the September 16-17 FOMC meeting. This, coupled with slightly better economic projections in the Summary of Economic Projections (SEP), represented a change in the Fed’s reaction function.

Rising Labor Market Risks Unite the Fed to Deliver 25bps Cut

September 17, 2025

Trusted Insights for What’s Ahead®

  • The Fed cut policy rates by 25bps at the September 16-17 FOMC meeting. This, coupled with slightly better economic projections in the Summary of Economic Projections (SEP), represented a change in the Fed’s reaction function.

  • The Fed chose to be more preemptive, rather than being fully data-dependent, – something Chair Powell referred to as a “risk management cut.”
  • The SEP showed that the Fed’s perception of risks to the employment mandate shifted higher, while risks to the inflation mandate moved slightly lower (see Figure 1 below). Further evolution of risks surrounding the health of the labor market and inflation will define the near-term path for rates.
  • Even as the median dot in the SEP projected an additional 50bps of cuts by yearend, the dot plot indicated a very close call among FOMC participants between 50bps or 25bps of additional cuts in 2025.
  • The Fed will pay close attention to the near-term trajectory of the unemployment rate as a measure of slack in the economy, rather than a less reliable signal from payrolls. 
  • An increase in the unemployment rate in September from the current 4.3% would likely warrant a
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Yelena Shulyatyeva

Yelena Shulyatyeva

Senior US Economist

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