Weak Jobs Force Rate Cut? Fed Cuts 25bps as Powell Signals Start of Easing Cycle

TradingKey - On September 17 (local time), the Federal Reserve announced a 25-basis-point cut to the federal funds rate, lowering its target range to 4.00%–4.25% — the first rate reduction since December 2024.

Despite inflation remaining above target, persistently weak labor market data pushed the Fed into a “risk management” stance, officially restarting a monetary easing cycle.

In his post-meeting press conference, Chair Jerome Powell stated clearly that the cut was intended to address growing downside risks to the economy. He noted that U.S. growth slowed in the first half of the year and that the labor market is “less strong than it was,” with rising risks to maximum employment.

This marks a shift in policy focus — from the long-standing priority of controlling inflation toward a more balanced approach that also considers employment objectives.

However, Powell emphasized that current policy is not “meaningfully out of alignment,” and that there is “no need for rapid rate adjustments,” ruling out aggressive cuts.

Markets widely interpreted his tone as dovish.

The updated dot plot further revealed internal divisions and political pressure. Of the 19 participants:

• 9 officials expect an additional 50 bps of cuts by year-end
• 2 see another 25 bps cut
• 6 favor holding rates steady

Notably, the only dissenter was newly appointed Governor Stephen Miran — a Trump appointee who still serves as Chair of the White House Council of Economic Advisers. Miran advocated for a 50-basis-point cut this meeting and expects over 100 bps of total cuts by year-end. His stance is widely seen as reflecting direct White House pressure for faster easing.

His dual role has sparked renewed concerns about the Fed’s independence. In response, Powell reaffirmed the central bank’s “strong commitment” to making decisions free from political influence.

Following the decision and dovish signals, market expectations for further easing intensified. According to the CME FedWatch Tool, the probability of a 25-basis-point cut in October stands at 87.7%, and the chance of 50 bps of cumulative cuts by December approaches 80%.

Jeffrey Gundlach, founder of DoubleLine Capital, said the Fed has now begun its easing cycle, with the pace to be determined by incoming data.

George Goncalves, Macro Strategy Head at MUFG, expects potential 25-basis-point cuts in both October and December.