FOMC Cuts Federal Funds Target by Consensus of 25 Basis Points… Newcomer Miran Stakes Out a Dissenting Position – Currency Thoughts
FOMC Cuts Federal Funds Target by Consensus of 25 Basis Points… Newcomer Miran Stakes Out a Dissenting Position
September 17, 2025
The new federal funds target range will be 4.0-4.25%. Eleven voting FOMC members favored a rate cut of 25 basis points. Governor Stephen Miran, who was only sworn in yesterday on the first day of the committee’s deliberations, dissented in favor of a 50 basis point cut to 3.75-4.0% and made an even bolder statement in the dot-plot graph of each FOMC’s views of where the interest rate ought to be at the end of each calendar year. His opinion is that the rate ought to be at 2.875% at the end of 2025. That’s 75 basis points lower than anyone else’s favored level and 150 basis points below the highest dot in the 2025 column.
The committee’s released statement acknowledges the slower rate of job creation and uptick of the unemployment rate, while deleting the overall view that labor market conditions remain solid. A separate phrase that “risks to employment have risen” was added to the text, as was another new phrase that there has been a “shift in the balance of risks.”
The line on inflation that it “has moved up and remains somewhat elevated” was not modified. Threading the needle between its two mandates that now point to different policy conclusions, the vast majority of the committee favors caution. Of the dozen committee members, five are district presidents, but if President Trump manages to get another pick among the governors, the majority of that sub-group on the FOMC would be his picks. The Board of Governors has the legal mandate to change district presidents, so there is a path for the White House to increase its influence over monetary policy in a substantial way over the coming year.
Neither the written handouts from the FOMC — a statement and forecasts that are updated quarterly — nor Chairman Powell’s press conference elicited much reaction from financial markets. Between 13:50 just ten minutes before the handouts to 15:20 shortly after the end of the press conference, the dollar firmed 0.2% against the yen but lid 0.1% versus the euro. Prices for oil, gold and bitcoin fell but by 0.3% or less. The DOW, SPX and Nasdaq rose but only marginally. The most consequential move was a four basis point drop in the 10-year U.S. Treasury yield, suggesting relief that presumably newcomer Stephen Miran’s arguments in favor of much lower interest rates didn’t persuade the rest of the committee, including those from Governors Bowman and Waller.
Each are a Trump appointee and they were the two members who had wanted a 25-basis point cut at the previous policy review in late July. The risk of political influence over the Fed’s management of short-term interest rates has received considerable attention, but so far, measures of expected inflation in the long run have not shown signs of becoming detached from the Fed’s 2% objective. It was reassuring at this meeting, inconveniently scheduled in a week of highly fractious politics in America, to see that the fall-out in monetary policy wasn’t immediately apparent.
The interest rate cut announced today is entirely justifiable by recent fundamental economic trends. There’s evidence that import tariff hikes are affecting goods price inflation, but the impact so far is less than feared. Employment growth has decelerated quite substantially, but other labor market metrics haven’t moved much. The shift in immigration policy can explain a lot of the jobs slowdown. Even with today’s interest rate cut, policy remains on the restrictive side of neutrality. So a 0.2 percentage point rise in projected PCE inflation shouldn’t seem incongruous with a resumed but small cut of the federal funds rate.
The lack of a reaction in markets to today’s Fed show may also simply reflect confusion about what the Fed does from here. The average projected interest rate level at the end of this year implies 1 or 2 more cuts, which is what forecasts had been expecting. A source of great confusion is the dot-plot graphs of favored interest rate levels at the ends of 2026, 2027 and 2028. Each shows a wide dispersion and no lack of consensus on what rate levels will be appropriate. As constructed currently, the make-up of the FOMC shows a collection of widely scattered beliefs among experts looking at the same data regarding the future ideal path of the federal funds rate. Add that mix to the possibility of a vast change in the independence of Fed policy, and it’s no wonder that market participants couldn’t coalesce on a significant reaction to what the Fed did today.
Copyright 2026, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: FOMC
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