Minutes from the Federal Reserve’s September 2025 meeting reveal a central bank at a crossroads, grappling with conflicting signals from a weakening labor market and persistent inflation above its 2% target. While policymakers approved a 0.25 percentage point rate cut during the session, the decision exposed growing divisions within the Federal Open Market Committee (FOMC) about the appropriate path forward.
A majority of officials concluded that deteriorating job market conditions—marked by stagnant hiring, rising unemployment, and fewer job openings—justified the reduction in borrowing costs. However, several participants expressed reservations, arguing that maintaining the current rate level might have been preferable. These dissenting voices highlighted that inflation had stalled in its return to target and warned that delaying progress could risk higher long-term inflation expectations.
“A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” the minutes noted. Their concerns centered on the potential for inflation to reaccelerate if not brought under control promptly.
Stephen Miran, a Fed governor, stood alone in advocating for a more aggressive 0.50 percentage point cut. A former top economic adviser to President Donald Trump, Miran has consistently argued that current rates are too restrictive. “Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment,” he said at a recent event hosted by the Economic Club of New York.
Looking ahead, projections from the September meeting show a split among the 19 voting and non-voting members: ten anticipate two additional quarter-point reductions this year, likely at the October and December meetings, while seven expect no further cuts. This divergence underscores the difficulty of navigating the Fed’s dual mandate—maximizing employment while ensuring price stability—amid uncertain economic conditions.
The labor market has shown signs of stagnation in 2025, even as inflation remains above 2%, raising concerns about the central bank’s ability to achieve both goals simultaneously. “Participants underscored the importance of maintaining a balanced approach—one that carefully considers the extent of deviations from the Committee’s dual mandate,” said EY-Parthenon chief economist Gregory Daco.
Chair Jerome Powell acknowledged the complexity of the current environment, describing it as a “high-risk scenario” with “no risk-free path.” He emphasized the challenge of weighing risks to employment against those to inflation.
Adding to the uncertainty, President Trump’s tariff policies have begun to pressure businesses to raise prices, despite earlier efforts to absorb costs through inventory stockpiling. While inflation has not spiked dramatically, progress toward the 2% goal has stalled, according to most officials. Still, many expect a temporary rebound before inflation resumes its downward trend.
The ongoing federal government shutdown has further complicated the Fed’s decision-making by delaying key economic data releases. The latest jobs report has been postponed, and upcoming indicators on inflation and consumer spending may also be affected if the shutdown persists. As a result, the central bank is increasingly relying on private-sector data to guide its October meeting.
Despite data limitations, market expectations point to another 0.25 percentage point cut later this month. “The increasingly fragile economic backdrop – compounded by a data vacuum induced by the government shutdown – is likely to tilt the balance toward further policy easing in 2025,” Daco said. He anticipates cuts in both October and December, though a more cautious stance may emerge in 2026 as different FOMC members gain voting rights.
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Federal Reserve officials divided on economic outlook and interest rate path
Federal Reserve officials were divided on whether to support the first interest rate cut of this year during their September meeting despite growing concerns about the strength of the job market, highlighting the challenging dynamic facing the central bank trying to manage the economy. n nMinutes from the central bank’s September meeting, when officials cut the benchmark interest rate by 0.25%, showed they are wrestling with how to balance sticky inflation with a cooling labor market. n nOfficials mostly agreed that the recent t with stalling job creation, steadily rising unemployment and fewer openings outweighed concerns about inflation, which has been running above their target of 2% for some five years. But a few also thought a cut wasn’t necessary and could have supported holding steady for another month. n n“A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” the minutes said. “These participants noted that progress toward the committee’s 2 percent inflation objective had stalled this year as inflation readings increased and expressed concern that longer-term inflation expectations may rise if inflation does not return to its objective in a timely manner.” n nFed governor Stephen Miran, who was was the only official to dissent and voted for a more aggressive half-point cut. Miran has advocated for cutting rates more aggressively and was a top economic adviser to President Donald Trump before his nomination. n n“Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment,” he said at an event at the Economic Club of New York last month. n nTen of the 19 officials who participated in the September meeting penciled in two additional cuts this year, which would come at the October and December meetings. But seven penciled in no more reductions this year, highlighting the developing divide on how to best manage rates in a tenuous time for the economy. n nThe Fed is in a difficult position in its bid to keep the economy on track. The labor market has largely stalled out in 2025 while inflation has been stuck above 2% for years and could jump again as more companies . Those issues pull at both ends of the central bank’s dual mandate of maximum employment and stable prices. n n“In light of these evolving dynamics, participants underscored the importance of maintaining a balanced approach—one that carefully considers the extent of deviations from the Committee’s dual mandate and recognizes the different time horizons over which price stability and maximum employment are likely to be restored,” said EY-Parthenon chief economist Gregory Daco. n nFed chair Jerome Powell said after the September meeting that the opposing forces have created a high-risk scenario for officials to figure out. n n“We have a situation where we have two-sided risk, and that means there’s no risk-free path. And so it’s quite a difficult situation for policymakers,” he said. “How do you weight them? How worried are you about one versus the other?” n nIn addition to two-sided risks, the Fed is also operating in a . Trump’s massive tariffs have not resulted in massive increases to prices like initially expected but are starting to put pressure on businesses to raise prices after many tried to stockpile goods and absorb increases. n nA majority of officials were concerned about the effects on inflation and that progress on getting it back to 2% had stalled. But policymakers also said they expect inflation to return to target after a temporary uptick in the coming months. n nThe ongoing government shutdown has further complicated that task with that help inform their decisions. Last week’s jobs report is on hold and further data on inflation and other economic indicators could are also in danger if the shutdown continues into next week. n nWithout the government data that is broadly considered the gold standard by economists and officials, the Fed is relying on private-sector data and reports to inform their decision ahead of this month’s meeting. n nanother quarter-point cut at this month’s meeting running Oct. 28-29 as officials have suggested the downside risk to the labor market is outweighing inflation concerns for now. n n“The increasingly fragile economic backdrop – compounded by a data vacuum induced by the government shutdown – is likely to tilt the balance toward further policy easing in 2025,” Daco said. “The path of least resistance appears to point to rate cuts in both October and December. Looking ahead to 2026, however, a more hawkish rotation among FOMC voting members is expected to favor a slower pace of easing.”