The Federal Reserve has announced its first interest rate cut since December 2024, pointing toward a degrading job market as a strong reason for the shift in stance.
The Federal Open Market Committee (FOMC) announced at its September meeting today that it is cutting interest rates by a quarter-percentage point to 4% – 4.25%, a move that was widely expected among economists.
Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni commented in a statement that the decrease of 0.25% “suggests that members, while acknowledging that downside risks to the job market have increased, are not panicking about the state of the economy.”
In the press conference following the decision, Fed Chairman Jerome Powell strongly attributed the decision to recent worsening signs in the job market. The August jobs report saw the U.S. add only 22,000 jobs, a significant slowdown, and the unemployment rate rise slightly to 4.3%—both highly negative signs for the economy.
“A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and lower labor force participation,” said Powell. “Even so, labor demand has softened and the recent pace of job creation appears to be running below the breakeven rate needed to hold the unemployment rate constant.”
The job market is expected by economists to continue to affect the FOMC’s decisions in the near future.
“The Fed is still very committed to its 2% inflation target, but inflation data is expected to be noisy given the stop-start nature of tariffs and their likely protracted and uneven pass through to consumer prices,” said Realtor.com® Chief Economist Danielle Hale. “This will make it harder to parse out the true underlying inflation pressure and may prompt the Fed to hone in on the labor market, where I expect the signal will be clearer.”
Tariffs have also been another economic complication the Fed has spoken out about frequently as of late. However, Powell and the FOMC did not point to tariffs in their reasoning for this month’s decision, and it was noted that as of right now, companies appear to be eating most of the inflationary costs. Powell also noted, though, that this is predicted to change and consumers will begin to absorb the inflationary costs over the course of the year.
Powell clarified his earlier statement on immigration following this, adding that he meant the downgrade in the labor market “has more to do with immigration than it has to do with tariffs.”
Also of note is the one dissenting vote in this month’s meeting, which came from new board member Dr. Stephen Miran. Miran was only just confirmed into the Fed on Sept. 15, following a nomination from President Donald Trump.
Miran agreed with a cut in rates, however, he dissented to the vote as he “preferred to lower the target range for the federal funds rate by 0.50%,” according to a release from the Fed.
In his joining of the Fed, Miran stated that he would not be leaving his position as chair of the White House Council of Economic Advisors. When asked how Miran remaining in his position could compromise the Fed, Powell declined to comment and said that “the committee remains united in pursuing our dual mandate goals; we’re strongly committed to maintaining our independence.”
The Fed and Powell have been in the headlines as of late due to a strong push from President Trump and other administration members for a cut in rates. When questioned about the Fed maintaining its independence from political opinions and entities, Powell maintained that the FOMC votes based purely on economic data and policy, stating that “we don’t frame these questions at all or see them in terms of political outcomes.” When prompted about whether the DOJ investigation against Fed Governor Lisa Cook is related to the topic of Fed independence, Powell said he sees it as a separate case and said it would be “inappropriate” to comment on.
In addition to announcing the rate cut, the FOMC also released its economic projections, which demonstrate the possibility of two more additional cuts this year, something Powell also mentioned in the press conference.
As for how this cut will affect mortgage rates, Cotality Chief Economist Dr. Selma Hepp said that the “immediate impact will be minimal,” but a further series of rate cuts could “continue to put gradual downward pressure on mortgage rates.”
“Mortgage rates are likely to continue trending toward the 6% range by the end of the year, although they are still expected to remain above 6%,” she continued.
