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Federal Reserve's Rate Cuts: What's Next for the Economy?

10/8/2025
The Federal Reserve is leaning towards further interest rate cuts amid rising unemployment concerns, but divisions remain among officials about inflation risks. Discover the implications for borrowers and the economy.
Federal Reserve's Rate Cuts: What's Next for the Economy?
Explore the Federal Reserve's recent decision on interest rates and its potential impact on the economy as officials grapple with inflation and unemployment risks.

WASHINGTON (AP) — According to the minutes released on Wednesday from last month's meeting, a significant majority of members of the Federal Reserve’s interest-rate setting committee expressed support for further reductions to the key interest rate this year. This comes as officials voiced increasing concerns over the risk of unemployment rising, which they felt had worsened since their previous meeting in July. In contrast, the minutes indicated that the risk of rising inflation “had either diminished or not increased.”

As a consequence of these discussions, the central bank decided at its September 16-17 meeting to reduce its key interest rate by a quarter-point, bringing it down to approximately 4.1%. This marked the first rate cut of the year. Such rate cuts by the Fed have the potential to gradually lower borrowing costs for essential financial products, including mortgages, auto loans, and business loans, thereby encouraging increased consumer spending and hiring in the economy.

However, the meeting minutes also highlighted a significant division within the 19-person committee. Some members believe that the Fed’s short-term interest rate is too high and is negatively impacting economic growth. Conversely, others point to persistent inflation levels that remain above the central bank’s target of 2%, arguing for caution regarding further rate reductions.

Only one committee member formally dissented from the quarter-point cut: Stephen Miran, who was appointed by former President Donald Trump and approved by the Senate just hours before the meeting. Miran advocated for a larger, half-point cut instead. The minutes revealed that “a few” policymakers were open to the idea of keeping rates unchanged, suggesting that there was “merit” in maintaining the current rates. These differing viewpoints help clarify Chair Jerome Powell’s statements made during the subsequent news conference, where he remarked, “There are no risk-free paths now. It’s not incredibly obvious what to do.”

On Tuesday, Miran expressed his belief that inflation is likely to decline steadily back toward the Fed’s 2% target, despite the implications of Trump’s tariffs. He argued that current trends in rental costs are showing a downward trajectory, which should help bring inflation down. Furthermore, he noted that tariff revenue could aid in reducing the government’s budget deficit, thereby lowering long-term interest rates and providing the Fed with greater flexibility for future rate cuts.

Nevertheless, many other Fed officials remain wary of the stubbornly high inflation rates. Jeffrey Schmid, president of the Kansas City branch of the Federal Reserve, emphasized in a speech on Monday that “inflation is too high” and advocated for maintaining interest rates at a level sufficient to cool demand and avert any further inflationary pressures. Similarly, Austan Goolsbee, president of the Chicago branch of the Fed, conveyed his support for a cautious approach to additional cuts in an interview with The Associated Press on Friday. He expressed a desire to see concrete evidence of inflation cooling further before endorsing more aggressive rate reductions. “I am a little uneasy with front loading rate cuts, presuming that those upticks in inflation will just go away,” he remarked.

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