The Fed's Interest Rate Decision: What It Means for You
The Federal Reserve is widely anticipated to announce its decision regarding interest rates today, September 17th, with many expecting a cut after recent reports signaled a softening labor market. Economists predict this could be the first of several reductions, impacting borrowing rates for both businesses and consumers.
Anticipated Rate Cut and Economic Context
Economists and investors are largely expecting a quarter percentage point cut, driven by reports indicating a weaker jobs market than previously assessed. A Bloomberg survey suggests that one or two more rate cuts could follow in 2025.
This decision arrives amidst growing political pressure from President Donald Trump, who has openly advocated for aggressive rate cuts and has taken steps to reshape the Fed's board of governors. This has raised concerns about the central bank's independence.
The Fed is scheduled to release its quarterly dot plot at 2 p.m. Eastern Time, followed by a news conference with Fed Chair Jerome Powell at 2:30 p.m. This plot outlines the projections of officials regarding future interest rate movements and "will be closely scrutinized," according to Nationwide Chief Economist Kathy Bostjancic.
Dissenting Opinions and the Labor Market
While a quarter-point reduction is the prevailing expectation, some Fed officials might advocate for a more aggressive cut. Governors Christopher Waller and Michelle Bowman, along with newly appointed Stephen Miran, could potentially dissent in favor of at least a half percentage point reduction, according to JP Morgan economist Michael Feroli.
Recent economic data paints a concerning picture of the labor market. The U.S. economy added only 22,000 jobs in August, as reported by the Bureau of Labor Statistics. The unemployment rate rose to 4.3%, the highest since October 2021, and revisions revealed a loss of 13,000 jobs in June, marking the first month of job losses since December 2020.
Other reports reinforce this weakening trend, including revisions to previous months and data showing significantly fewer workers hired than initially estimated.
Inflation and Wall Street's Reaction
Consumer prices increased modestly in August, rising 2.9%, according to the Labor Department. Core inflation, which excludes more volatile items, remained steady at 3.1%. While inflation has decreased considerably from its 2022 peak, it still exceeds the Fed's 2% target.
Wall Street opened subdued ahead of the Fed's decision. The Dow Jones Industrial Average saw a modest increase, while the Nasdaq and S&P 500 experienced slight declines. The Fed meeting is expected to test the recent rally on Wall Street, which has been driven by rate-cut expectations and enthusiasm for AI-related stocks.
Challenges and Possible Outcomes
Tariffs present a significant challenge to the Fed, potentially increasing consumer prices while simultaneously curbing growth. This situation complicates the Fed's dual mandate of maintaining stable prices and maximum employment. Recent economic data "pushes the FOMC (Federal Open Market Committee) into an uncomfortable position," according to Scott Anderson, BMO Capital Markets’ chief U.S. economist.
The CME FedWatch tool indicates a high probability of a quarter percentage point cut in September. Fed funds futures markets are currently pricing in a total of three rate cuts this year.
Political Interference and the Fed's Independence
An appeals court recently ruled that Fed Governor Lisa Cook can continue her duties despite President Donald Trump's efforts to remove her. The administration's actions have been met with criticism, with some viewing them as an assault on the Fed's independence.
The Senate confirmed President Donald Trump’s pick, Stephen Miran, to join the Fed's board of governors just before the rate decision meeting. Miran's appointment, along with the attempt to remove Cook, has raised concerns about political influence over the Fed.
| Key Factors Influencing the Fed | Details |
|---|---|
| Weakening Labor Market | Disappointing job growth in recent months. |
| Inflation | Above the Fed's 2% target but cooling significantly. |
| Political Pressure | President Trump's calls for rate cuts and attempts to influence the Fed's board. |
| Tariffs | Potential to both increase prices and curb growth. |
Mortgage Rates and the Impact of Job Data
The weak jobs report could potentially lead to lower mortgage rates. For homebuyers, this presents an opportunity to secure more affordable financing. Lower borrowing costs can translate into smaller monthly payments, enabling buyers to consider a wider range of properties. Furthermore, homeowners might find opportunities to refinance at lower rates.
According to Mortgage News Daily data, average rates for a 30-year fixed mortgage fell to 6.28% on Monday, September 8, down from 6.53% the previous week.
Strategies for Homeowners and Buyers
- Build your credit score to improve your access to lower interest rates.
- Make a larger down payment to mitigate lender risk.
- Reduce your debt-to-income ratio to prove that you can pay off debts.
US Interest Rate Cuts
The Federal Reserve is expected to cut interest rates today. The new range of interest rates will likely be 4% to 4.25%— the lowest level since late 2022. It could kick off a series of additional reductions to bring down borrowing costs across the US.
In the UK, Europe, Canada and elsewhere, central banks have already responded with lower rates, while the Fed's own policymakers have said for months that they expected to lower borrowing costs by at least half a percentage point this year.
"It really comes down to what we've seen in the jobs market - the deterioration that we've seen over the past few months," said Sarah House, senior economist at Wells Fargo, which is expecting rates to drop by 0.75 percentage points by the end of the year. "The Fed knows that when the labour market turns, it turns very quickly, so they're wanting to make sure they're not stepping on the brakes of the economy at the same time the labour market has already slowed."
