What choice did they have? The Federal Reserve governors finally ran out of excuses after the jobs-market data turned out to be massively cooked over the last two years. Looking at an economy with nearly two million fewer jobs than they assumed and with investment stalling out, the Fed had no choice but to lower its prime lending rate.
Even so, they still played Scrooge, only lowering it minimally by 0.25%:
The Federal Reserve approved a quarter-point interest rate cut Wednesday, the first in nine months, with officials judging that recent labor-market softness outweighed setbacks on inflation.
A narrow majority of officials penciled in at least two additional cuts this year, implying consecutive moves at the Fed’s two remaining meetings in October and December. The projections hint at a broader shift toward concern about cracks forming in the job market in an environment complicated by major policy shifts that have made the economy harder to read.
The Fed’s carefully drafted post-meeting statement pointed to those concerns when it said the rate cut was justified “in light of the shift in the balance of risks.” The statement no longer described the labor market as “solid.” Officials also removed a key phrase that had been used this year to tamp down expectations of rate cuts, further underscoring how reductions at upcoming and consecutive policy meetings have become more likely.
Well, that was ... not much of a move. The markets had already priced that much into the mix and barely budged after the announcement. The Dow Jones went up by half a point, but both the S&P and NASDAQ indices ended up slightly in the red at the end of the trading day.
Fed chair Jerome Powell didn't exactly instill confidence today, either. At his presser, Powell all but threw up his hands about what to do next:
A narrow majority of Fed officials penciled in at least two more rate cuts this year, one more than they did a few months ago. But in a sign that the Fed is increasingly divided on the path forward, more policymakers signaled they have doubts about whether additional cuts are warranted at all this year and Fed Chair Jerome H. Powell acknowledged there is no “risk free” paths for the central bank.
“It’s not a bad economy or anything like that,” Powell said during a news conference. “But from a policy standpoint … it’s challenging to know what to do.”
The first thing to do might be to jettison the assumption that the economy is healthy. That's a leftover from the Biden administration, whose data brokers turned out to be gaslighting investors and policymakers on jobs data. Actual jobs growth has been stagnant for the past two years when Powell and the Fed assumed that job creation was robust. Inflation has been largely under control for a while, which means that the Fed has pursued the wrong monetary policies for at least a year, and still hasn't shifted gears despite having those assumptions blown up.
And it's not just the jobs data. Home construction has declined sharply, as Heather Long pointed out today, as the US still struggles with housing pressures:
The home building boom is over.
— Heather Long (@byHeatherLong) September 17, 2025
Building permits sank to 1.3 million in August --> the lowest level since the pandemic spring of 2020.
As @dehenau_ often says, we need ~2 million new homes a year to even come close to meeting demand. We're going in the wrong direction. pic.twitter.com/QqiI1Fndux
The expected net outflow of residents in the US may help alleviate the housing supply issue, but this should incentivize more investment in expansion, which in turn would benefit the job market. The lack of expansion signals that investors still aren't satisfied with the current economic environment, even with the Trump administration adding incentives in both tax and regulatory policy. This time it's monetary policy that seems frozen and unable to adjust.
Supposedly, we'll see a couple of more rate decreases before the end of the year, but likely those will also be incremental. Don't expect much bang for the buck with this move, though.
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