Fed Officials Shift Gears as Jobs Market Woes Spark Rate Cut Push

Federal Reserve officials have signaled a potential interest rate cut in September 2025 amid mounting concerns over the U.S. labor market and economic growth. The federal funds rate, which has remained unchanged at 4.25% to 4.50% since the beginning of the year, is expected to decrease by 25 basis points, bringing it to a range of 4.00% to 4.25%. The likelihood of such a cut, as reflected in the CME Group’s FedWatch tool, stands at approximately 90% ahead of the central bank’s policy meeting set for September 17 [1].

The Fed’s stance has shifted somewhat in recent weeks, with several top officials, including St. Louis Fed president Alberto Musalem, expressing concerns over a weakening job market and the potential for a sharper-than-expected economic slowdown. Musalem noted that the effects of recent tariff policies could work their way through the economy over the next two to three quarters before fading in terms of inflationary impact [2]. His comments mark a departure from his earlier hawkish position this year.

Federal Reserve governor Chris Waller has also publicly advocated for a rate cut at the upcoming meeting, emphasizing the need to preempt a potential downturn in the labor market. Waller argued that a softening labor market could deteriorate quickly, and he has called for multiple cuts over the next several months to reach what he defines as the “neutral rate” of 3%, which would neither stimulate nor slow economic activity [2]. Atlanta Fed president Raphael Bostic echoed similar sentiments, stating that recent signs of cooling in the job market justify a rate reduction to prevent a sudden and severe downturn [2].

The anticipated rate cut is expected to have a limited immediate impact on mortgage rates. While homebuyers and refinancers may welcome the move, the 25-basis-point reduction is considered modest and unlikely to cause a significant drop in mortgage borrowing costs. In fact, many mortgage lenders may have already priced in the expected cut, meaning advertised rates could remain relatively unchanged in the short term. Experts note that mortgage rates are influenced by more than just the Fed’s policy decisions, with the 10-year Treasury yield and broader macroeconomic conditions also playing key roles [1].

Looking internationally, the U.S. Federal Reserve’s move to ease monetary policy contrasts with the more cautious approach of its European and U.K. counterparts. The European Central Bank (ECB) and the Bank of England (BoE) are not expected to reduce rates in 2025, with the BoE’s chances of a cut diminishing after recent inflation data showed a slight upward trend to 3.8% in the year to July [5]. Meanwhile, the euro has gained strength against both the U.S. dollar and the British pound in 2025, reflecting divergent monetary policy paths and diverging inflationary pressures [5].

Market participants will be closely watching upcoming economic reports in the U.S., including the balance of trade and labor market data, to determine the extent of the Fed’s rate cut and its broader implications. The outcome of these reports could influence whether the cut is limited to 25 basis points or expanded to 50 basis points, depending on how the labor market and inflation data evolve [5].

Source: [1] How low will mortgage rates fall with a September Fed rate cut? (https://www.cbsnews.com/news/how-low-will-mortgage-rates-fall-september-2025-fed-rate-cut/) [2] Fed hawk Musalem opens the door to possibility of rate cut (https://finance.yahoo.com/news/fed-hawk-musalem-opens-the-door-to-possibility-of-rate-cut-132533130.html) [5] Interest rates in Europe and the US: a contrasting picture (https://www.lumonpay.com/corporate/articles/interest-rates-in-europe-and-the-us-a-contrasting-picture/)