Fed Minutes Show Quarter-Point Cut as Officials Weigh Rising Job-Market Risks

The Federal Reserve’s September meeting minutes show policy makers lowered interest rates by a quarter percentage point and signaled readiness to ease further as downside risks to employment gained prominence even while inflation remained “somewhat elevated.” The Federal Open Market Committee (FOMC) reduced the target range for the federal-funds rate to 4%–4.25% in a decision supported by almost all members, with one official favoring a larger move.

In their post meeting statement—reproduced in the minutes—officials said “the Committee decided to lower the target range for the federal funds rate by ¼ percentage point to 4 to 4¼ percent,” adding that “downside risks to employment have risen.” The statement reiterated the Fed’s “strong commitment to supporting maximum employment and returning inflation to its 2 percent objective.”

The minutes describe a shifting risk calculus after weaker-than-expected labor data over the summer. Staff noted the unemployment rate edged up to 4.3% in August and that job gains slowed, with revisions pointing to a lower level of payroll employment than previously reported. Participants “judged that downside risks to employment had increased,” while acknowledging that inflation pressures had firmed earlier in the year and “remained somewhat elevated.”

Market expectations moved in tandem. Desk surveys and pricing suggested investors anticipated multiple quarter-point cuts by year-end, with near-term paths marking a “faster return of the federal funds rate to its longer-run level.” Treasury yields fell 20 to 40 basis points during the intermeeting period, led by the front end, and equities advanced on the “benign baseline macroeconomic outlook.” The yield curve steepened as short rates declined on shifting policy-rate expectations, the minutes show.

Officials discussed the sources and trajectory of inflation, noting tariff increases were adding near-term upward pressure, though “these effects appeared to have been somewhat muted to date” and were expected to be realized by the end of next year. Longer-term inflation expectations were described as “well anchored,” and several participants said the labor market wasn’t expected to generate additional inflation pressure. The staff projected inflation to decline in 2026, reach 2% in 2027, and remain there in 2028.

One significant dissent came from Governor Stephen Miran, who preferred a half-point cut. The minutes state that Miran cited “further softening in the labor market” and argued that underlying inflation was “meaningfully closer to 2 percent than was apparent in the data.” He also said additional easing was warranted because the neutral rate had fallen, pointing to factors including “increased tariff revenues that had raised net national savings” and changes in immigration policy.

On implementation, the committee directed the New York Fed to maintain the funds rate within the new target range and continue balance-sheet runoff within existing monthly caps—$5 billion for Treasurys and $35 billion for agency MBS reinvested into Treasurys—while authorizing standing overnight repo and reverse-repo operations. The Board also lowered the interest rate on reserve balances to 4.15% and cut the primary credit rate to 4.25%, effective Sept. 18.

Money markets showed signs of tighter collateral dynamics around tax dates and elevated bill supply. On Sept. 15, usage at the Fed’s Standing Repo Facility reached $1.5 billion as secured rates came under “additional upward pressure,” though the effective federal-funds rate remained stable. Staff projected that if runoff continued at the current pace, the Fed’s portfolio would slip to “just over $6 trillion” by March, with reserves near $2.8 trillion by the end of the first quarter. Officials said reserves remained ample but emphasized close monitoring as they decline.

Looking ahead, “most” participants judged “it likely would be appropriate to ease policy further over the remainder of this year,” while stressing that policy is “not on a preset course” and will be guided by incoming data, the evolving outlook, and the balance of risks. Several participants noted that by some measures financial conditions may not be particularly restrictive, warranting a cautious approach to additional moves.