As expected, the FOMC cut the fed funds target rate range by 25 basis points to a range of 4.00 to 4.25 percent. The decision was made in light of the shift in the balance of risks in which downside risks to employment have risen even as inflation has moved up and remains somewhat elevated.

The meeting vote was 11-1 with newly installed governor Stephen Miran dissenting in favor of a 50 basis point cut.

The summary of economic projections has an upward revision for GDP in 2025 to up 1.6 percent (previously up 1.4 percent), and upward revisions for 2026 and 2027 to up 1.8 percent and up 1.9 percent, respectively. The new forecast for 2028 is for growth at up 1.8 percent, consistent with the longer-run forecast. There is no change in the forecast for the 2025 unemployment rate of 4.5 percent, and small downward revisions in 2026 and 2027 to 4.4 percent and 4.3 percent, respectively. The unemployment rate in 2028 is forecast at 4.2 percent, also the same as the longer-run estimate.

The annual change in the PCE deflator remains at 3.0 percent for 2025, but is revised a little higher to up 2.6 percent in 2026, falling to 2.1 percent in 2027 and 2.0 percent in 2028. The core deflator annal change remains at 3.1 percent for 2025, is revised up two-tenths to 2.6 percent in 2026, and declining to 2.1 percent in 2027 and 2.0 percent in 2028. The Fed's inflation objective of 2 percent will take a while to reach.

The mid-point of the fed funds is now 4.125 percent compared to the end of year forecast of 3.6 percent. This implies rate cuts of 50 basis points over the next two meetings on October 28-29 and December 9-10. This is a faster pace of rate cuts than seen in the July SEP. However, forecasts for the next three years look for only measured further cuts in rates with the end of year mid-point at 3.4 percent in 2026, and 3.1 in 2027 and 2028.

The consensus sees a 25 basis point rate cut after a series of job reports suggesting the economy is stalling.

The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.

Frequency
Eight times a year.