Minutes from the Fed’s September meeting reveal a cautious approach to future interest rate cuts

the Federal Reserve The central bank on Wednesday released the minutes of the central bank’s monetary policy meeting last month, which showed that while policymakers expect further interest rate cuts, they remain committed to returning inflation to its 2% target.

The Federal Open Market Committee, which directs the Federal Reserve’s monetary policy actions, voted in September to cut the federal funds rate by 25 basis points to a range of 4% to 4.25%. This move led to interest rates being cut for the first time in 2025, but it came as follows: Inflation remained high The long-term inflation target set by the Federal Reserve is 2%.

The latest reading on the Consumer Price Index (CPI) rose 2.9% year over year for August, while the Fed’s preferred measure of inflation – the Personal Consumption Expenditure (PCE) Index – rose 2.7% from a year ago. These measures were noticeably lower earlier this year, with CPI at 2.3% and personal consumption expenditures at 2.2% in April.

The Federal Open Market Committee said: “The majority of participants emphasized the upside risks to their inflation expectations, noting that inflation readings are moving more than 2 percent, continuing uncertainty about the effects of tariffs, the possibility that inflation will prove more stable than currently expected even after the inflation effects of tariff increases fade this year, or the possibility of rising expectations.” “Long-term inflation after a long period of high inflation readings.”

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The FOMC noted that participants generally believe “this year will be a good one.” Tariff increase Although inflation has put upward pressures, some note that these effects appear to be somewhat weak so far compared to expectations earlier this year.

Policymakers generally believe inflation will be closer to target but for a short time, the minutes added Higher tariffsWith some noting that “trade communications have indicated that they will raise prices over time due to higher costs resulting from increased tariffs.”

“Uncertainty remains about the inflationary effects of tariff increases this year, although most participants expected these effects to be achieved by the end of next year,” the FOMC said.

The record showed that some political decision-makers believe that Rise in inflation This year could have been an excuse for the Fed to leave interest rates unchanged.

“These participants noted that progress towards the Committee’s 2% inflation target has stalled this year as inflation readings increase, and expressed concern that longer-term inflation expectations could rise if inflation does not return to its target in time,” the minutes said.

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Despite these concerns about the future path of inflation, policymakers went ahead with lowering interest rates due to concerns about inflation Weak labor marketOfficials believed that negative risks to employment had increased since the previous meeting.

They pointed to the low rates of hiring and firing as “evidence of weak dynamism in the labor market.” Job gains were concentrated in a few economic sectors, and higher unemployment rates among groups sensitive to cyclical economic changes – including African Americans and young people – were among other data points that showed labor market weakness.

As the Federal Open Market Committee (FOMC) moves forward with… Cut off 25 bp In September, “nearly all participants indicated that with the reduction in the target range for the federal funds rate at this meeting, the Committee was well positioned to respond in a timely manner to potential economic developments.”

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Federal Reserve Governor Stephen Meiranwho was participating in the first FOMC meeting after his role was confirmed last month, was the only policymaker to vote in favor of a 50 basis point cut and object to the committee’s vote.

Minutes from the Federal Open Market Committee meeting showed that policymakers have a range of views on the path to further interest rate cuts in the future. “Most felt it would likely be appropriate to ease policy further over the remainder of the year,” the Fed said. “Some participants noted that financial conditions, by several measures, suggest that monetary policy may not be particularly restrictive, which they considered warrants a cautious approach in considering future policy changes.”

Market reaction to the FOMC minutes showed that additional cuts of 25 basis points are still expected at the Fed’s next two meetings in late October and mid-December, according to the CME FedWatch tool.

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Tariffs “will continue to put upward pressure on inflation in the near term. Inflation is unlikely to reach target until late 2027 which means these pressures are more persistent and persistent than expected several months ago, but that does not mean we will not see improvement in 2026,” Jeffrey Roach, chief economist at LPL, said in a note.

“Futures markets may turn out to be more accurate than the FOMC consensus forecasts, especially if inflation continues to decline in 2026. Investors should expect two additional cuts this year with a pause at the January 2026 meeting,” Roach added.