A
s the Federal Reserve's September 16-17, 2025 meeting approaches, one question dominates everyone's minds: Will the Fed cut interest rates? Considering the volatile economic data, I believe a rate cut of 0.25% is likely, but the decision will depend on key data points released before the meeting.
The Fed has kept interest rates between 4.25%-4.50% since December 2024 and held steady at their July 30, 2025 meeting. However, a disappointing jobs report in July 2025 significantly increased the chances of a rate cut, with market predictions jumping to over 80% according to the CME FedWatch tool.
The economy is sending mixed signals, making the Fed's job challenging. Inflation remains above the target of 2%, driven by higher tariffs and core inflation at 2.9%. The labor market seems to be cooling off, with a rising unemployment rate and slowed job growth. May and June job numbers were revised downward by 258,000 jobs.
At the July 30 meeting, two governors voted for a rate cut of 0.25%, showing pressure to lower rates. Fed Chair Jerome Powell emphasized that no decision was made about September, but stressed the need to balance cutting rates too soon, which could cause inflation to rise again, versus waiting too long and hurting the job market.
Tariffs are causing headaches, with Chair Powell admitting they've made some goods more expensive. The uncertainty around future tariff policy can hurt business confidence and investment decisions. Economic growth was driven by trade and lower imports in the second quarter, but domestic final sales grew only 1.2%, and consumer spending slowed to 1.4%.
Financial markets are divided, with some expecting aggressive rate cuts after Powell's cautious comments. Big Wall Street firms have changed their forecasts, with Goldman Sachs predicting three rate cuts in 2025 and BlackRock's Rick Rieder suggesting a possible 0.50% cut if the job market weakens.
The Fed's decision will influence global markets and other central banks. A rate cut could weaken the U.S. dollar, affecting emerging market economies and trade worldwide. The Economic Policy Uncertainty Index hit a high of 243.7 in July 2025, making decisions tough for businesses and policymakers.
Fed officials have dispersed forecasts, with different ideas about where interest rates should go. The job situation is crucial, and the Job Openings and Labor Turnover Survey (JOLTS) has shown fewer jobs and lower hiring rates. Although inflation has come down from its peak, core inflation remains a concern, potentially reaching 2.9% by August 2025.
Based on all the evidence, I believe the Fed will likely cut rates in September, with markets estimating around an 80% chance of a 0.25% reduction. The challenge will be to figure out recent labor market problems are just a short-term glitch or a sign of something more serious.
