Economic Insurance: Fed Begins A New Cycle Of Cuts

September 19, 2025

The big news in the financial markets last week was the Federal Reserve Open Market Committee’s decision to reduce its overnight lending rate (the Fed funds rate) by 0.25%, the first reduction this year.

To recap its charge, the Fed’s charter has a dual mandate for its action: 1) to maintain low and stable inflation, and 2) to foster stable economic growth.  These sometimes-conflicting goals demand a delicate balancing act by the Fed.

Balancing the Labor Statistics

Following months of intransigence and an overwhelming focus on the potential inflationary aspects of tariffs and stubborn underlying inflation, emerging cracks in the labor markets forced action.  First, last month’s Bureau of Labor Statistics revisions to employment creation showed about 900,000 fewer jobs created in the last year than previously reported.  Second, for the first time in four years, there are fewer job openings than workers available to fill them. 

These factors, and a slowly rising unemployment rate, put to rest the Fed’s statements in prior meetings that the labor markets were ‘roughly in balance’.  The Fed acknowledged that a restrictive policy – one with its lending rate noticeably above current inflation – was no longer appropriate.  In addition, Chair Powell noted rising credit delinquencies and poor hiring prospects for named demographic groups (younger workers and minorities) as factors worth watching, but not yet alarming.

Pressure from the President

Not unexpectedly, Chair Powell downplayed any pressure from the Trump administration in its decision process.  Interestingly, the only dissenting vote on the rate cut was from President Trump’s new appointee to the Board, Steven Miran.  His argument for a larger 0.5% reduction was overwhelmingly rejected by the full Committee.

In sum, Chair Powell characterized last week’s cut as ‘insurance’.  And, it will likely be the first of multiple cuts over the next few meetings.  Nine of the twelve voting members penciled in two more cuts in 2025.  In the absence of a long-awaited, tariff-induced burst of inflation or a surprising recovery in the jobs market, follow-up cuts are a near certainty.

So, we’re clearly in a new cycle for Fed policy.  To learn more about how this affects our management of the wealth to entrust to us, call your Investment Manager and Advisor for an in-depth review of your portfolio.  Your success – in stable and changing environments – matters to us.