By Chad Roope, CFA ®, Chief Investment Officer

This month, we highlight the key outcomes of the Federal Reserve (Fed) interest rate decision announced on Sept. 17. Overall, the decision was what we expected. Here is a brief summary:

1. Interest rate cut: The Fed cut its federal funds rate by 0.25 percentage point, lowering the target range to 4.00%–4.25%. This is the first rate cut since December 2024.
    
2. Voting: The decision was mostly unanimous: 11 out of 12 voting members supported the 0.25-point cut. The sole dissenting vote came from Stephen I. Miran, who preferred a larger cut of 0.50 percentage points.
    
3. Balance of risks & stance:
   • The Fed noted that growth has moderated, job gains have slowed, and unemployment has edged up, though it still remains low.
   • Inflation remains elevated but isn’t accelerating at the same pace; there’s more concern now about economic weakness and risks to employment.
   • The Fed emphasized that it will carefully assess incoming data and adjust policy as appropriate.

Projections / Outlook

From the Fed’s Summary of Economic Projections released alongside the decision:

• GDP growth:
  The median projection for U.S. real GDP growth in 2025 is about 1.6%, rising modestly in subsequent years.
   
• Unemployment rate:
  The unemployment rate is expected to be around 4.5% in 2025, with slight declines in 2026-2027, barring worse-than-anticipated weakening.
   
• Inflation (PCE):
  Inflation (the PCE measure) is projected to remain above target in the near term: about 3.0% in 2025, then easing toward 2.6% in 2026, and closer to 2.1-2.2% in 2027-2028. Core inflation is similarly elevated but expected to gradually come down.
   
• Path of interest rates:
  The projections suggest that the Fed sees the “appropriate policy path” involving further rate cuts this year. The midpoint of the funds-rate target at the end of 2025 is seen by many participants lower than where it is now.

Implications & Highlights

• The move marks a shift. The Fed is now signaling more concern about employment-side risks rather than only focusing on inflation.
   
• There was political pressure and attention (e.g. from the executive branch), but the Fed reaffirmed its commitment to making decisions based on data.
   
• Markets will be watching upcoming domestic data (jobs, inflation, consumer spending) to see how quickly the Fed might move with further cuts. Also important will be international developments.

What the Market Seems to Be Pricing In

• Further rate cuts:
  The market is expecting more cuts before the end of the year—some analysts see 2-3 additional quarter-point cuts in 2025.
   
• A cautious Fed stance:
  Even though there was a cut, markets recognized that the Fed’s tone was measured. The Fed emphasized risks (especially inflationary pressures and uncertainty) and made it clear that decisions will be data-dependent, which tempered enthusiasm.
   
• Uncertainty/volatility risk:
  Because the Fed’s dot plot showed quite a spread of views, there’s more uncertainty about exactly how fast or how far policy will shift. Expect markets to be sensitive to upcoming labor, inflation, and consumer spending data.

Risks

• Inflation remains sticky, and the Fed is still signaling concern about upside risks. That reduces the odds of aggressive easing.
   
• Weakness in the labor market is now being factored in, which could dampen growth expectations.
   
• Mixed signals from Fed governors (i.e., the dissent and different projections) add to investor caution.

At Lineweaver Wealth Advisors, we will be monitoring incoming data closely, but we think the interest cut by the Fed was warranted, as are a few more cuts over the coming months. We think stocks and bonds may continue to perform well in this environment after we get through seasonal volatility in September and October. However, neither stocks or bonds are particularly inexpensive now, so we aim to participate in upside potential while being mindful of risks and are prepared to proactively take action in your portfolio as data changes.
Source: CNBC, Reuters, BlackRock