Softening Labor Market Leads to Easing, Reducing Balance Sheet
The Federal Reserve on Sept. 17, 2025 lowered interest rates by a quarter point, the first such move since December 2024.
Mortgage rates have been coming down, down to their lowest rate in about three years, all in anticipation of the cut may be warranted.
The Federal Reserve board is meeting this week. As talks concluded, Chairman Jerome Powell held a press conference with the updated number and the board’s rationale behind the cut.
“You can think of this, in a way, as a risk management cut,” Powell said.
Revised employment numbers in recent months, bringing the monthly average of jobs added to about 71,000, have incentivized the rate cut, which may have happened even if the labor market had remained steady.
Powell said some inflationary pressure could be related to higher tariffs. He questioned whether the impact would show up as a singular event or if the impact will endure and drive more inflation over time.
“Their overall impact on the ecomomy remains to be seen,” he said. “That is a risk to be assessed and managed.”
First Trust Advisors Economists Brian S. Wesbury and Robert Stein stated in a Sept. 15 newsletter to subscribers that the Federal Reserve is “almost certainly going to cut rates on Wednesday – we think by a quarter percentage point – and will be inclined to cut rates further in the fourth quarter, likely by another half a point total.”
Powell added that conversation among the board governors during the week had little momentum toward a half-point cut.
In September of 2024, the Fed cut rates a half point, and followed with two more quarter-point cuts by the end of the year. The Fed’s goal is to get inflation down to 2 percent with continued growth in the labor market. The price of goods and services in August was about 2.9 percent year-over-year, and employment has been unsteady.
Recent numbers show 22,000 jobs added in August, less than a third of what was anticipated, and revised June numbers show a loss of 13,000 jobs. The U.S. economy hadn’t lost jobs in a month in more than four years. Unemployment is up to 4.3 percent, its highest rate since 2021.
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