Better Late than Never? Fed Cuts Rates 25bps

Fed Cuts Rates by 25 bps, as Growth Moderates, Inflation Remains

The Federal Open Market Committee (FOMC) concluded its September meeting by lowering the federal funds rate target range by 25 basis points to 4.00–4.25%. The decision reflects slower economic momentum in the first half of the year, a cooling labor market, and inflation that remains above the Committee’s 2% objective. One dissent was recorded. Governor Stephen I. Miran favoring a deeper 50-basis-point cut.

Policy Statement

The Committee noted that “growth of economic activity moderated in the first half of the year” and that job gains have slowed. Unemployment edging higher but still at historically low levels. Inflation has moved up in recent months and remains somewhat elevated. The Fed reiterated its dual mandate, emphasizing both maximum employment and stable 2% inflation. Pledging to remain attentive to downside risks in the labor market.

Beyond interest rates, the Fed will continue reducing its balance sheet. Allowing Treasury securities, agency debt, and mortgage-backed securities to roll off. Policymakers signaled that additional adjustments to the funds rate will depend on incoming data, the evolving outlook, and the balance of risks.

Updated Economic Projections

Alongside the policy statement, the Fed released its Summary of Economic Projections (SEP). The median outlook calls for U.S. GDP growth of 1.6% in 2025. Gradually firming to 1.9% in 2027. Unemployment is projected to ease from 4.5% this year to 4.2% by 2028.

Inflation remains above target in the near term. The Fed sees headline PCE inflation at 3.0% in 2025, moderating to 2.6% in 2026 and converging to its 2.0% target by 2028. Core PCE, which strips out food and energy, is projected at 3.1% this year before easing to 2.1% in 2027.

The “dot plot” shows participants expect the federal funds rate to fall to 3.6% by year-end 2025 and drift toward 3.0% in the longer run, slightly below prior projections.

Risks and Market Outlook

FOMC members highlighted elevated uncertainty, with downside risks to employment outweighing upside risks to inflation. The updated forecasts suggest the Fed is balancing the need to ease financial conditions against the risk of reigniting price pressures. Market participants will now focus on upcoming inflation prints and labor market data to gauge whether the September cut marks the start of a more extended easing cycle.

Paradigm Futures will continue to monitor the Fed’s path and its implications across grains, energy, and financial markets. As always, our focus remains on how shifting monetary policy intersects with commodity risk management strategies.