September 2025 FOMC Meeting: the Federal Reserve Delivered Its First Rate Cut of the Year

Chart 3: US Nonfarm Payroll Net Revision (2nd Revision  –  Initial Estimate)

Dot Plot Reveals Divergence Among Fed Officials; Rate Path Remains Uncertain

Although the Federal Reserve delivered a widely expected 25-basis-point rate cut at its September meeting, the latest dot plot and accompanying remarks from officials highlight growing divergence within the committee regarding the future path of interest rates—underscoring the high degree of policy uncertainty ahead.

According to the Fed’s updated projections, the median forecast suggests two more rate cuts in 2025, likely in October and December. However, a closer look at the distribution reveals a split view: among the 19 officials, 9 anticipate two additional cuts this year, while another 9 expect at most one more cut—or none at all. Notably, 6 officials project no further easing in 2025.

Looking ahead to year-end 2026, the dispersion is even wider. Officials’ projections range from just one additional cut to as many as six (i.e a target range between 2.50% and 2.75%). This reflects significant differences in views on inflation dynamics and the broader economic outlook (see Chart 4).

Chart 4: Federal Reserve Dot Plot

Notably, the September rate cut was passed with near-unanimous support, with only one dissenting vote from Stephen Miran—a recent appointee by the Trump administration. Miran, who holds a distinctly dovish stance, advocated for a 50-basis-point cut in September and expects as many as five rate cuts in total this year.

In recent months, President Trump has repeatedly criticized Fed Chair Jerome Powell for his hawkish stance and has openly considered removing him. He also attempted to dismiss Fed Governor Lisa Cook over allegations of mortgage fraud. Although neither action materialized, these developments have raised market concerns about political interference in the Fed’s independence and decision-making autonomy.

Currently, three of the seven sitting governors have been appointed by Trump. With both Powell and Cook facing political pressure, we believe the Fed’s near-term policy decisions may continue to be influenced by external political dynamics.

Market consensus now expects two more rate cuts before year-end, bringing the total to three for 2025. This would lower the federal funds rate to a target range of 3.50%–3.75%.

Powell Mentions Rate Cut as Risk Management; Inflation Pressures May Limit Further Policy Easing

At the post-meeting press conference, Powell stated that the September rate cut was a ‘risk management’ measure aimed at managing recession risks, particularly in response to signs of cooling in the labour market. He reiterated that the Fed has not committed to a preset path of rate cuts, noting that the dot plot merely reflects current expectations. Future policy decisions will remain data-dependent, with the pace of easing contingent on inflation and employment trends.

Given that inflation remains the primary driver of long-term policy rates, we believe price dynamics will continue to be the key variable shaping future decisions. According to the latest data, core PCE inflation held steady at 2.9% year-on-year in July—still notably above the Fed’s 2% target ( Chart 5).

Chart 5: US Core CPI and Core PCE Inflation

With new tariffs now in effect and corporate inventory destocking nearing completion, goods prices may once again come under upward pressure, raising the risk of a resurgence in inflation.

Given the lagged impact of tariffs on actual inflation, and with current price data yet to show clear signs of cooling, we believe the Fed has limited room for aggressive rate cuts. As such, we expect at most one to two additional cuts this year, each by 25 basis points. Unless the employment situation deteriorates significantly, the likelihood of a one-off 50-basis-point cut in either of the remaining two meetings is low.