Introduction to Interest Rates
The Federal Reserve’s meeting on September 16-17, 2025, is approaching, and everyone is wondering if they will cut interest rates. Considering the current economic data, it’s likely that the Fed will cut rates by 0.25% at the September meeting. However, the final decision will depend on key data points released before the meeting.
Current Economic Situation
The Federal Reserve has kept the interest rate between 4.25%-4.50% since December 2024. At their July 30, 2025, meeting, they decided to hold steady. The market initially predicted only a 37% chance of a rate cut, but after a disappointing jobs report in July 2025, the prediction went up to over 80% according to the CME FedWatch tool.
Factors Influencing the Fed’s Decision
The economy is sending mixed signals, making the Fed’s job much harder. The main factors influencing their decision are:
- Inflation: Still above the Fed’s target of 2%, with a current rate of 2.7% in June 2025.
- Labor Market: The labor market seems to be cooling off, with the unemployment rate increasing to 4.2% in July and job growth slowing down.
Tensions Within the Fed
At the Federal Reserve’s July 30th meeting, there was some disagreement. Two governors, Michelle Bowman and Christopher Waller, voted for a rate cut of 0.25%. The Fed Chair, Jerome Powell, played it cool and mentioned that no decision was made about September. He stressed that the Fed wanted to see more data before making any move.
The Tariff Situation
Tariffs are causing some serious headaches. Chair Powell admitted that they have made some goods more expensive. The full effect is still unclear, and it’s a delicate balancing act for the Fed. They see some tariff-related price increases as temporary, but the uncertainty around future tariff policy can hurt business confidence and investment decisions.
Economic Growth and Consumer Spending
The U.S. economy grew at a 3.0% rate in the second quarter of 2025, mostly due to trade and lower imports. However, domestic final sales only grew by 1.2% in the second quarter, which is the slowest since late 2022. Consumer spending, which is a significant factor for economic growth, has also slowed, growing by just 1.4% in the second quarter.
What Wall Street Thinks
Financial markets haven’t been able to make up their minds. After Powell’s cautious comments in July, the dollar became stronger, and Treasury yields increased. People thought the Fed would not be cutting rates soon, but the weak jobs report changed everything. Market participants now expect more aggressive rate cuts. Big Wall Street firms have changed their forecasts accordingly, with Goldman Sachs predicting three rate cuts in 2025.
The Global View
The Fed’s decision will greatly influence global markets and other central banks. Many foreign central banks have already started cutting rates. The Fed’s actions will likely affect how quickly other central banks make their own changes. If the Fed starts slashing interest rates, the U.S. dollar, which has been strong, may weaken, affecting emerging market economies and trade around the world.
Uncertainty Makes Decisions Tough
The Economic Policy Uncertainty Index hit a high of 243.7 in July 2025, showing how difficult it is for businesses and policymakers to plan for the future. Fed officials have said that their forecasts are dispersed, and the June 2025 Summary of Economic Projections showed that FOMC participants have different ideas about where interest rates should go.
Jobs and Inflation
The job situation is crucial for the Fed’s decision, and the Job Openings and Labor Turnover Survey (JOLTS) has shown fewer jobs and lower hiring rates. Although inflation has come down from its peak, core inflation remains a concern. Models from the Federal Reserve Bank of Cleveland predict that prices will continue to rise in the near future, potentially reaching 2.9% by August 2025.
Interest Rate Predictions for September 2025
Based on all the evidence, it’s likely that the Fed will cut rates in September. Right now, markets estimate around an 80% chance of a 0.25% reduction. The Fed’s next steps will depend on how the economy performs, especially concerning the job market and inflation.
Conclusion
The Federal Reserve is approaching a crossroads. The September 2025 FOMC meeting could set the tone for monetary policy. Smart investors are acting now to position their portfolios ahead of the Fed’s next move. Whether or not a rate cut happens, securing cash-flowing properties in stable markets can help shield investments from volatility and interest rate swings. As the economy continues to evolve, it’s essential to stay informed and adapt to the changing landscape.
