The Federal Reserve’s September meeting minutes, released Wednesday, show officials were largely united in their view that interest rates should move lower — but divided on just how far and how fast. The debate underscores the central bank’s delicate balancing act as it navigates a slowing labor market, persistent inflation risks, and the added complication of a government shutdown that has disrupted key economic data.
Two or Three Cuts?
The Federal Open Market Committee (FOMC) voted 11-1 to lower its benchmark federal funds rate by a quarter percentage point, bringing the target range down to 4%–4.25%. The move was widely expected, but the minutes reveal a split over the path ahead.
A slim 10-9 majority of participants favored two additional quarter-point cuts by year-end, while others leaned toward three. Projection materials also suggested one more cut in both 2026 and 2027, before rates settle into a long-term neutral range around 3%.
The lone dissent came from newly appointed Governor Stephen Miran, who had just taken office hours before the meeting. Miran argued for a more aggressive half-point cut, setting himself apart as the only official pushing for faster easing. In subsequent remarks, he acknowledged being the lone "dot" on the Fed’s policy projections signaling a steeper path of cuts.
Labor Market Concerns
The minutes highlight growing unease about the labor market, which officials described as weakening. While inflation remains above the Fed’s 2% target, participants judged that the risks to employment had increased, while upside risks to inflation had either diminished or held steady.
"Participants generally noted that their judgments about this meeting’s appropriate policy action reflected a shift in the balance of risks," the minutes said. "In particular, most participants observed that it was appropriate to move the target range for the federal funds rate toward a more neutral setting because they judged that downside risks to employment had increased."
Still, some officials urged caution, noting that financial conditions did not appear especially restrictive. That view suggested the Fed should avoid cutting too aggressively, even as others argued that easing was necessary to prevent further labor market deterioration.
Tariffs and Inflation
Another topic of discussion was the impact of President Donald Trump’s tariffs. While the levies have contributed to higher prices this year, officials generally agreed they were unlikely to be a lasting source of inflation. The consensus was that inflationary pressures from tariffs would fade, leaving the Fed focused on broader economic dynamics.
Market Expectations
The Fed’s internal debate closely mirrored expectations in financial markets. A survey of primary dealers conducted by the New York Fed showed that almost all respondents anticipated a 25-basis-point cut at the September meeting, with about half expecting another cut in October. By year-end, the vast majority of survey participants expected at least two cuts, and roughly half anticipated three.
Market pricing currently implies near certainty of another cut at the October 28–29 meeting, followed by one more in December.
The Shutdown Factor
Complicating matters is the ongoing government shutdown, which has shuttered agencies like the Labor and Commerce departments. That means policymakers may not have access to fresh data on inflation, unemployment, and consumer spending ahead of their next meeting.
Without those reports, the Fed could be "flying blind," relying on incomplete information to guide policy decisions. The lack of data may not stop the Fed from cutting rates, but it could influence the size and pace of future moves.
A Narrow Consensus
Despite the differences in outlook, the minutes show broad agreement that the Fed is in a position to respond flexibly to economic developments. "Almost all participants noted that, with the reduction in the target range for the federal funds rate at this meeting, the Committee was well positioned to respond in a timely way to potential economic developments," the minutes stated.
That flexibility will be tested in the months ahead, as the Fed weighs the risks of cutting too slowly against the dangers of easing too quickly.
Investor Takeaway
For investors, the September minutes reinforce several key themes:
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Rate cuts are coming: At least two more reductions are likely by year-end, with the possibility of three.
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Labor market weakness is driving policy: Employment concerns are now front and center, even as inflation remains above target.
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Policy uncertainty is high: A divided Fed, a government shutdown, and mixed economic signals mean volatility could persist.
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Long-term rates may settle lower: Projections suggest the federal funds rate will eventually stabilize around 3%.
The Bottom Line
The Fed’s September minutes paint a picture of a central bank leaning toward more easing but divided on the pace. With the labor market softening and inflation risks moderating, most officials see room to cut further. But the lack of fresh data due to the shutdown, combined with internal disagreements, means the path forward is anything but clear.
For markets, the message is straightforward: expect more cuts, but don’t expect unanimity. The Fed is navigating a tricky environment, and investors should be prepared for a bumpy ride as 2025 winds down.