Federal Reserve System (FED) investor relations material

Economic outlook and labor market

• Economic growth has moderated, with GDP rising 1.5% in the first half of the year, down from 2.5% last year.

• Consumer spending has slowed, business investment has picked up, and housing remains weak.

• Unemployment edged up to 4.3% in August, with job gains slowing to 29,000 per month over the past three months.

• Labor demand and supply have both softened, with job creation now below the break-even rate needed to keep unemployment steady.

• Downside risks to employment have increased, with the median projection for unemployment at 4.5% by year-end.

Inflation and monetary policy

• Inflation has risen recently, with total PCE prices up 2.7% and core PCE up 2.9% over the past year.

• Near-term inflation expectations have increased due to tariffs, but long-term expectations remain anchored near 2%.

• The FOMC lowered the federal funds rate by 0.25% to a range of 4–4.25% and will continue reducing securities holdings.

• Interest rate paid on reserve balances reduced to 4.15 percent, and the primary credit rate decreased to 4.25 percent, both effective September 18, 2025.

• The median projection for the federal funds rate is 3.6% at year-end, declining to 3.1% by 2027.

Risks, rationale, and policy direction

• Risks to inflation are tilted to the upside, while risks to employment are to the downside.

• The rate cut is seen as a move toward a more neutral policy stance, balancing both sides of the dual mandate.

• The decision was driven by increased downside risks to employment and a cooling labor market.

• The Committee remains prepared to adjust policy as needed based on incoming data and evolving risks.

• There is a wide range of views among FOMC participants about the future path of rates, reflecting the unusual economic situation.