In September, Federal Reserve officials exhibited a strong tendency to cut interest rates, with the sole contention appearing to be the number of reductions anticipated, according to the meeting minutes released on Wednesday.
The summary of the meeting revealed nearly unanimous agreement among participants at the Federal Open Market Committee that the central bank should reduce its key overnight borrowing rate due to weaknesses evident in the labor market.
However, there was a divide on the total number of cuts, with opinions differing on whether there should be two or three total reductions this year, including the quarter percentage point decrease approved during the Sept. 16-17 meeting.
“In assessing the monetary policy outlook, nearly all participants observed that, with the reduction in the target range for the federal funds rate at this meeting, the Committee was well-prepared to react promptly to potential economic changes,” the minutes noted.
“Participants shared a variety of opinions about how restrictive the current monetary policy stance was and the expected future trajectory of policy,” the document continued. “Most believed that it would likely be suitable to further ease policy in the remaining months of this year.”
A narrow vote difference
Projection documents shared at the meeting demonstrated the tight division among the 19 officials involved in FOMC meetings, of which 12 hold voting rights.
While the complete Federal Open Market Committee voted 11-1 to cut its benchmark interest rate by a quarter percentage point, participants expressed differing views on the aggressiveness of their approach for the remainder of 2025 and the following years. The rate cut lowered the federal funds rate to a target range of 4%-4.25%.
In the end, a slight 10-9 majority supported the implementation of quarter-point reductions at each of the two remaining meetings this year. Projection materials indicated the probability of one additional reduction in both 2026 and 2027 before the funds rate stabilizes in a long-term range near 3%.
However, the meeting featured various perspectives. The session on Sept. 16-17 marked the first for newly appointed Governor Stephen Miran, who assumed his position just hours before its commencement.
Miran distinguished himself as the sole voter advocating for a significantly more aggressive easing approach. Though the minutes do not specify individual participants, the post-meeting statement acknowledged that Miran was the dissenting vote, favoring instead a half-point reduction.
Additionally, in subsequent public statements, Miran pointed out that he was a solitary “dot” indicating a far more aggressive easing path compared to the rest of the committee.
Apprehensions regarding the labor market
The meeting showcased a spectrum of views, with some members endorsing a more cautious strategy for rate cuts.
“Some participants mentioned that, by various indicators, financial conditions suggested that monetary policy might not be particularly constrictive, which they felt warranted a careful approach in evaluating future policy alterations,” the minutes indicated.
Officials expressed concern over the labor market’s condition, perceiving it as deteriorating while upward inflation threats persisted, even though they still anticipated a return to the Fed’s 2% target.
“Participants generally indicated that their evaluations regarding the appropriate policy action for this meeting reflected a shift in the balance of risks,” the minutes stated. “In particular, most participants noted that it was suitable to adjust the federal funds rate target range toward a more neutral level because they believed that downside risks to employment had increased during the intermeeting period, while upside inflation risks had either lessened or remained stable.”
Tariffs were a crucial topic of discussion, with a prevailing sentiment that President Donald Trump‘s tariffs would not become a significant source of persistent inflation following their impact on price increases this year.
The committee’s views on rates aligned with a survey conducted by the Fed targeting primary dealers in financial markets, according to the summary.
“Nearly all respondents to the Desk survey anticipated a 25 basis point reduction in the target range for the federal funds rate at this meeting, with approximately half expecting another reduction at the October meeting,” the minutes revealed. “The vast majority of survey participants anticipated at least two 25 basis point cuts by the end of the year, with around half forecasting three reductions during that period.”
One basis point corresponds to 0.01%, meaning a 25 basis point change equates to a quarter percentage point.
Alongside the unusual range of diverse perspectives, policymakers now grapple with the consequences of the government shutdown. Data-providing agencies like the Labor and Commerce departments have ceased operations during the ongoing impasse and are not issuing or gathering data.
If the shutdown does not conclude before the FOMC’s Oct. 28-29 meeting, policymakers will essentially be operating without crucial economic metrics regarding inflation, unemployment, and consumer spending. Market pricing indicates a strong likelihood that the Fed will implement cuts at both the forthcoming meeting and one in December, but that decision could be swayed by the absence of data.
Correction: An earlier version inaccurately attributed the views from a market survey to Fed officials. A market participants’ survey indicated that “about half” expect three total cuts this year.
