WASHINGTON (TNND) — Federal Reserve officials were divided on whether to support the first interest rate cut of this year during their September meeting despite growing concerns about the strength of the job market, highlighting the challenging dynamic facing the central bank trying to manage the economy.
Minutes from the central bank’s September meeting, when officials cut the benchmark interest rate by 0.25%, showed they are wrestling with how to balance sticky inflation with a cooling labor market.
Officials mostly agreed that the recent downward trends in the labor market with stalling job creation, steadily rising unemployment and fewer openings outweighed concerns about inflation, which has been running above their target of 2% for some five years. But a few also thought a cut wasn’t necessary and could have supported holding steady for another month.
“A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” the minutes said. “These participants noted that progress toward the committee’s 2 percent inflation objective had stalled this year as inflation readings increased and expressed concern that longer-term inflation expectations may rise if inflation does not return to its objective in a timely manner.”
Fed governor Stephen Miran, who was confirmed on the first day of the September Fed meeting, was the only official to dissent and voted for a more aggressive half-point cut. Miran has advocated for cutting rates more aggressively and was a top economic adviser to President Donald Trump before his nomination.
“Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment,” he said at an event at the Economic Club of New York last month.
Ten of the 19 officials who participated in the September meeting penciled in two additional cuts this year, which would come at the October and December meetings. But seven penciled in no more reductions this year, highlighting the developing divide on how to best manage rates in a tenuous time for the economy.
The Fed is in a difficult position in its bid to keep the economy on track. The labor market has largely stalled out in 2025 while inflation has been stuck above 2% for years and could jump again as more companies pass costs from tariffs onto consumers. Those issues pull at both ends of the central bank’s dual mandate of maximum employment and stable prices.
“In light of these evolving dynamics, participants underscored the importance of maintaining a balanced approach—one that carefully considers the extent of deviations from the Committee’s dual mandate and recognizes the different time horizons over which price stability and maximum employment are likely to be restored,” said EY-Parthenon chief economist Gregory Daco.
Fed chair Jerome Powell said after the September meeting that the opposing forces have created a high-risk scenario for officials to figure out.
“We have a situation where we have two-sided risk, and that means there’s no risk-free path. And so it’s quite a difficult situation for policymakers,” he said. “How do you weight them? How worried are you about one versus the other?”
In addition to two-sided risks, the Fed is also operating in a time of significant uncertainty about the future. Trump’s massive tariffs have not resulted in massive increases to prices like initially expected but are starting to put pressure on businesses to raise prices after many tried to stockpile goods and absorb increases.
A majority of officials were concerned about the effects on inflation and that progress on getting it back to 2% had stalled. But policymakers also said they expect inflation to return to target after a temporary uptick in the coming months.
The ongoing government shutdown has further complicated that task with delays of economic data releases that help inform their decisions. Last week’s jobs report is on hold and further data on inflation and other economic indicators could are also in danger if the shutdown continues into next week.
Without the government data that is broadly considered the gold standard by economists and officials, the Fed is relying on private-sector data and reports to inform their decision ahead of this month’s meeting.
Wall Street still broadly expects another quarter-point cut at this month’s meeting running Oct. 28-29 as officials have suggested the downside risk to the labor market is outweighing inflation concerns for now.
“The increasingly fragile economic backdrop – compounded by a data vacuum induced by the government shutdown – is likely to tilt the balance toward further policy easing in 2025,” Daco said. “The path of least resistance appears to point to rate cuts in both October and December. Looking ahead to 2026, however, a more hawkish rotation among FOMC voting members is expected to favor a slower pace of easing.”