The U.S. Federal Reserve (Fed)’s policy-setting Federal Open Market Committee (FOMC) announced today* a 25 basis point cut in the Fed funds rate’s target range (to 4.00% to 4.25%) as was widely expected. However, while the new median “dot” for the projected policy path and dissent from the Committee’s newest member1 (who wanted 50 basis points worth of cuts today) suggest a growing dovish lean at the central bank, the other points of interest disseminated this afternoon do not necessarily suggest that is overwhelmingly the case. Accordingly, while bonds (and equities) rallied on the initial announcement, by the end of the day they reversed course as markets digested the new information.

The statement accompanying today’s policy announcement2 (provided below for ease of access, with the additions and deletions versus July3 highlighted by me) indicated that the decision to cut today was based on the judgement that “downside risks to employment have risen” — job market conditions that had been characterized as “solid” since January4 are no longer viewed that way, as “Job gains have slowed, and the unemployment rate has edged up” — despite it being noted that inflation not only “remains somewhat elevated” but has “moved up.”

Interestingly, however, the Summary of Economic Projections5 (SEP) released in tandem with the statement today actually showed that FOMC participants marginally lowered their forecasts for the unemployment rate relative to the last projections released in June (median year-end forecasts now 4.5%, 4.4% and 4.3% for 2025, 2026 and 2027 respectively versus 4.5%, 4.5% and 4.4% previously) as growth forecasts were upgraded across the profile by 10 to 20 basis points per year — and the near-term outlook for inflation was also revised slightly higher, with overall and core personal consumption expenditure (PCE) price growth now expected to slow to just 2.6% by the end of next year (up from +2.4% for both) before eventually hitting the 2% target in 2028.

This modestly more sanguine outlook for the U.S. economy comes against a downwardly adjusted path for policy rates. The median projected Fed funds rate as per the updated “dot plot” is now 3.625% for the end of this year (down from 3.875% previous and suggesting a 25 basis point cut at each of the remaining two meetings), 3.375% for the end of 2026 and 3.125% in 2027 and 2028 — that represents an additional 25 basis points worth of cuts in the profile to 2027 relative to June, though the “longer run” rate was unchanged at 3%.

 

FOMC median projected Fed Funds Rate Target

Source: Guardian Capital, based on data from the U.S. Federal Reserve as at September 17, 2024

 

This downward move in the median projected rate path appears to mirror the suggestion in the statement of more conviction in direction for policy (the consideration of “the extent and timing” with respect to additional policy moves was removed); however, it may not be so clear cut, even with the potential for a more dovish makeup of the FOMC at the margin next year.

For example, the shift in the median “dot” for this year was narrowly driven by one person (nine favoured one more cut or less, 10 preferred two or more, including one (likely recent presidential appointee, Miran) that projected a year-end rate of 2.875%; the average “dot” was 3.809%) while the outyears show a dispersion in “dots” that does not point to unified beliefs.

This is not to say that the path of least resistance at the Fed now is not for lower rates (a move from the current “restrictive” territory toward something closer to “neutral” very much appears to be in the cards), but further cuts, once “neutral” is in sight, are far from a given; as it does not really square with the general outlook that the American economy will continue to show resilience (and inflation holds materially above target). Indeed, Fed Governor Powell characterized today’s move as a “risk management cut” in his postmeeting presser, which does not suggest much urgency to get to the “easy side” of the policy spectrum.

 

Press Release

July 30 September 17, 2025

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

Although swings in net exports continue to affect the data, rRecent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and tThe unemployment rate has edged up but remains low, and labor market conditions remain solid. Inflation has moved up and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to maintain lower the target range for the federal funds rate by 1/4 percentage point to at 4 to 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Jeffrey R. Schmid; and Christopher J. Waller. Voting against this action were Michelle W. Bowman and Christopher J. Waller was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 1/2 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.

 

FOMC median projected Fed Funds Rate Target (percent)

The shaded region represents a period of U.S. recession; gray lines represent the FOMC participant median projected Fed funds rate target at a previous meeting; source: Guardian Capital, based on data from the U.S. Federal Reserve as at September 17, 2025

FOMC projected Fed Funds Rate Target for year-end 2025 (percent)

Source: Guardian Capital, based on data from the U.S. Federal Reserve as at September 17, 2025

Fed funds rate target midpoint & expectations (percent)

Source: Guardian Capital, based on data from the U.S. Federal Reserve and Bloomberg to September 17, 2025

FOMC median projected Fed Funds Rate Target, Longer Run (Neutral) (percent)

Source: Guardian Capital, based on data from the U.S. Federal Reserve as at September 17, 2025

FOMC statement word count* (number)

*Includes only the body text, not voting nor supplementary materials; source: Guardian Capital, based on data from the U.S. Federal Reserve to September 17, 2025

 

David Onyett-Jeffries

David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP). He provides macroeconomic guidance to GCLP and its affiliates. Additionally, he is a portfolio manager of GCLP’s multi-asset portfolios and funds and works closely with GCLP’s Directed Outcomes team. 

 

*September 17, 2025
1 Board of Governors of the Federal Reserve System, Press Release, Stephen I. Miran sworn in as a member of the Board of Governors of the Federal Reserve System, September 16, 2025, https://www.federalreserve.gov/newsevents/pressreleases/other20250916a.htm

2 Board of Governors of the Federal Reserve System, Press Release, Federal Reserve issues FOMC statement,  September 17, 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20250917a.htm

3 Board of Governors of the Federal Reserve System, Press Release, Federal Reserve issues FOMC statement,  July 30, 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20250730a.htm

4 Board of Governors of the Federal Reserve System, Press Release, Federal Reserve issues FOMC statement, January 29, 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20250129a.htm

5 Board of Governors of the Federal Reserve System, Monetary Policy, Summary of Economic Projections, September 17, 2025, https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20250917.pdf

 

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Published: September 18, 2025