The Fed cut interest rates by 25bps to 4.00–4.25%, in line with market expectations. The decision was not unanimous, with newly confirmed temporary Governor Stephen Miran dissenting in favor of a larger 50bps cut. However, notable doves Christopher Waller and Michelle Bowman aligned with the majority, helping to anchor the outcome around the base case.
In its statement, the Fed reiterated that any further adjustments will be guided by incoming data, the evolving outlook, and the balance of risks. The careful wording underscored policymakers’ preference for a step-by-step approach, avoiding a signal of urgency while still keeping the easing cycle in play.
The updated projections confirmed a measured path of rate cuts. The median federal funds rate is expected to fall to 3.6% by year-end, implying two more 25bps reductions in October and December. For 2026, the Fed sees rates at 3.4%, suggesting just one cut that year, followed by another in 2027 to land just above the estimated 3.0% longer-run neutral rate.
On the labor market, the Fed’s outlook improved slightly. Unemployment is now expected at 4.5% in 2025, 4.4% in 2026, and 4.3% in 2027, a modestly better path than projected in June. This adjustment reflects confidence that the labor market can soften without unraveling, helping to balance the inflation fight with growth stability.
Inflation forecasts also shifted. Core PCE is now projected at 3.1% in 2025, dipping more sharply to 2.6% in 2026 before easing further to 2.1% in 2027. The 2026 forecast was revised higher from 2.4%, likely reflecting temporary tariff-related pressures, but the trajectory still points toward inflation returning close to target over the medium term.
Full FOMC statement and economic projections.
