More rate cuts eyed as Fed zeroes in on soft labor market

• Key insight: The Federal Reserve's move to cut rates was bolstered by growing concern over a softening labor market.
• Expert quote: "Almost everyone wrote down support for this cut. Some supported more cuts, and some didn't — and that's just how it is," — Fed Chair Jerome Powell 
• What's at stake: Despite the Fed moving to cut the short-term interest rates by 25 basis points, it said it will continue to monitor how monetary policy impacts both the labor market and inflation. It stated it is prepared to adjust its monetary stance "as appropriate if risks emerge."

In a move widely anticipated by markets, the Federal Reserve's rate-setting committee voted Wednesday to cut short-term interest rates by a quarter percentage point, citing growing concerns over the labor market as a leading motivation.
The Federal Open Market Committee also released its updated economic projections, which showed that nine committee members are expecting two additional rate cuts before the end of the year.

While the vote to cut rates was unanimous, there was some division over the size of the move. Out of the 12 committee members, newly confirmed Fed Governor Stephen Miran stood out as the only participant who favored a deeper cut, favoring a 50 basis point cut. 

Miran's dissent came during his first FOMC meeting, having been confirmed by the Senate Monday evening and sworn in as a Federal Reserve Board Governor Tuesday morning. Prior to joining the Fed, he chaired the White House Council of Economic Advisers, from which he is currently on leave.

Addressing the vote, Fed Chair Jerome Powell said there was a "high degree of unity" among committee members.

Monetary policy

Federal Open Market Committee press conference: Live coverage 

September 17, 2025 1:30 PM

"Almost everyone wrote down support for this cut. Some supported more cuts, and some didn't — and that's just how it is," Powell said at a press conference. "There is a range of view in the dots, [which is] very unsurprising given the historically unusual nature of the challenge we face."

Notably, Fed Governors Christopher Waller and Michelle Bowman, both previously vocal about the central bank's need to cut rates, aligned with the majority in supporting the 25 basis point reduction. Some analysts have suggested that members who dissented in the September vote may be signaling ambitions to succeed Jerome Powell as Fed chair.

Powell called the monetary policy action "a risk management rate cut," characterizing it as a preemptive action to guard against further weakening in the labor market.Some investors took that language as a signal the Fed could cut rates at its next two meetings. A note from Jefferies observed that Powell's remarks didn't rule out "another cut, or a pause, for October," and added, "We continue to expect 25 bp cuts at each of the next two meetings."Others were less convinced. Isaac Wheeler, managing director of Balance Sheet Strategy at Derivative Path, said that the likelihood of the Fed moving to loosen monetary policy will depend on further deterioration in employment data.

"We believe additional rate cuts will require continued weakness in labor market data," wrote Wheeler in a note Wednesday. "Absent such weakness, the Fed appears inclined to preserve its policy flexibility and hold rates steady."

This is the first time the FOMC moved to cut rates this year, after holding off due to concerns around how tariffs and immigration policies would impact inflation and the job market. 

Still, the central bank appears far from achieving full alignment on both sides of its dual mandate. Powell acknowledged that while the economy isn't "bad," the current environment makes it "challenging to know what to do" from a policy standpoint.

"There are no risk-free paths now," he said. "It's not incredibly obvious what to do, so we keep our eye on inflation and at the same time, we must keep our eye on maximum employment, which are our co-equal goals."

The most recent employment figures released by the Bureau of Labor Statistics showed the economy added only 22,000 jobs in August, which came after the bureau reported just 73,000 jobs were added in July and revised down prior months' estimates by 258,000 jobs, indicating that the labor market is weakening more severely than experts had assumed. Most recent consumer inflation estimates showed that inflation grew at 0.4% in August, a higher but more manageable increase.

During his speech, Powell dismissed recent chatter of a third mandate and dodged questions regarding the Fed's independence. 

Regarding the third mandate floated by Miran, Powell said the Fed hasn't entertained the idea of treating long-term price stability as a policy-setting priority in itself, saying that achieving the existing dual mandate tends to result in moderate long-term interest rates.  

"We haven't thought of that for a very long time as a third mandate [because] that requires independent action, so that's where that is," Powell said. "As far as I'm concerned there's no thought of considering that we somehow incorporate that in a different way."

Meanwhile, amid uncertainty in the days leading up to the meeting, Fed Governor Lisa Cook was ultimately allowed to cast a vote in favor of the 25-basis-point cut, despite her ongoing lawsuit against President Donald Trump. Trump moved to fire Cook from the Fed Board over alleged mortgage impropriety late last month, but Cook sued the president, arguing that Trump's reasoning is not a valid basis for her removal and the lack of process around her removal violates her right to due process. A court ruled last week that Cook can remain on the board as the litigation proceeds, and an appeals court on Monday upheld that ruling. The central bank has pledged to comply with what the courts decide.