America’s central bank is probably on the edge of its first rate cut of 2025.
The Federal Reserve is meeting for the sixth time this year. At every previous meeting in 2025, they’ve opted to hold rates steady, but that’s set to change. Wednesday’s decision isn’t a sure thing, but CME FedWatch estimates a near-100% chance of a cut.
The meeting follows several monthly reports showing soft job growth, a slow rise in unemployment, and inflation numbers creeping back up. President Donald Trump, meanwhile, has put Fed Chair Jerome Powell in the hot seat, repeatedly calling for a rate cut and criticizing the central bank’s leadership. Powell has maintained that his decision-making will be solely based on the Fed’s dual mandate of maximum employment and stable prices.
Powell signaled that the Fed could be ready for a policy change in his Jackson Hole keynote last month. “While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said, adding, “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
The expected cut could provide relief for borrowers and trickle down to American consumers, especially those looking to purchase homes, buy cars, take out loans, and use credit cards. But Stephen Kates, a financial analyst at Bankrate, said it won’t be a sign of celebration or economic health.
“This isn’t the victory parade over conquering inflation,” Kates said. “This is potentially making a cut because the economy is faltering, and that’s not necessarily a good thing.”
Various economic factors will shape the Fed’s decision
The Fed will base its rate decision on a series of economic indicators — many of which have a direct impact on consumers.
The consumer price index, one inflation measure, increased 2.9% year over year in August, the highest rate since January. That’s up from its recent low of 2.3% in April. GDP is recovering from an early-year plateau, and a key marker of consumer sentiment dipped this month.
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As for the labor market, the US added far fewer jobs than expected in both July and August. June was also revised to a small decline, the first loss since December 2020. Though layoffs and unemployment are historically low, companies are hesitant to hire, employees are holding on to their current gigs, and white-collar job seekers have told Business Insider they feel frustrated by limited opportunities.
The Fed typically chooses to cut rates to stimulate a slowing economy, though Powell has been taking a wait-and-see approach on Trump’s trade policy. In July, Governors Christopher Waller and Michelle Bowman dissented to the hold call because “excluding temporary effects of tariffs, a labor market near full employment but with signs of less dynamism, and slowing economic growth this year” indicated that it was time to begin cuts, according to a note from Bowman in the meeting minutes.
Many investors have also been vocal about their desire for at least a quarter-point cut, with markets surging after Powell’s Jackson Hole speech.
A single rate cut won’t have a major impact on housing, autos, or credit
Rate cuts can provide relief to borrowers, but Kates said a single move wouldn’t have a massive effect on consumers.
Thirty-year fixed mortgages, two-year auto loans, and credit card rates tend to move up and down alongside the federal funds rate, though factors like inflation and investor behavior can also have a major impact on borrowing costs. It can take time and multiple Fed moves to filter through to those consumer-facing rates.
Kates said that a September cut wouldn’t immediately cause rates to fall “simply because some of that has already happened in anticipation of the actual event.”
That’s been the case for mortgage rates: the 30-year fixed-rate mortgage has largely been cooling this summer.
While a rate cut would lead to a boon for borrowers, savers would likely see lower gains. “Consumers should be caring about this rate cut because it could make debt more affordable, but it can also lower the yield that people are getting on savings vehicles like high-yield savings accounts or certificates of deposits,” Sean Pyles, a personal finance expert at NerdWallet, told Business Insider.
Pyles said credit card rates tend to drop when the Fed lowers the federal funds rate, but it can take months or several billing cycles before this has an effect.
Any substantial changes in borrowing costs for consumers would likely come from multiple rate cuts over the coming months, not the single September decision. Mark Hamrick, Bankrate’s senior economic analyst, said that a smaller 25-basis-point cut “would not have hugely consequential implications for the lives of most Americans” since the benchmark would still be restrictive.
“However, if it is the beginning of a sustained rate reduction campaign, that would be more meaningful, reducing economic headwinds and potentially giving the housing market a boost,” Hamrick said.
The White House continues to put pressure on the central bank
The Trump administration has been pushing for a rate cut for months, with the president often posting criticism of Powell online.
“Jerome ‘Too Late’ Powell should have lowered rates long ago,” Trump wrote in a September 5 Truth Social post. “As usual, he’s ‘Too Late!'”
The president has also encouraged Powell to resign and spoken about firing him, though economists previously told Business Insider that an unexpected change in Fed leadership would send markets spiraling. Powell’s official term ends in May.
Other members of the Fed have been under pressure, too. Trump recently called on Fed Governor Lisa Cook to resign, alleging that she committed mortgage fraud. Her attorneys denied the allegation, and Cook remains in her seat. A Reuters report on September 13 found that documents showed her second property was listed as a vacation home, not a primary residence, contrary to the allegations.
The president also has a say in replacing Fed Governor Adriana Kugler, who announced her resignation in August. Trump nominated Stephen Miran, the chair of the White House’s Council of Economic Advisors, to be her replacement. Trump’s additions to the Fed’s open market committee could give the White House more sway in monetary policy over time.
