Federal Reserve Meeting Statement – September 2025

The Fed reduces rates by 25 basis points (0.25%)

All eyes were on the Federal Open Market Committee of the Federal Reserve (Fed) on Wednesday, September 17, with most expecting a long-anticipated reduction in the federal funds rate, or the overnight rate at which banks borrow from each other.

The Fed delivered, reducing rates by 25 basis points (0.25%). The vote to lower rates was 11-1, and put the overnight funds rate in a range between 4.00%-4.25%. The lone dissenting vote came from the newest Fed appointee, Stephen Miran, who wanted a larger half-point cut.

A reduction in rates was not a surprise.

While the White House has long been advocating for easing, the Fed has been reluctant to act as inflation has remained stubbornly high in the post-pandemic era. However, several recent data points gave the Fed the confidence to cut for the first time since December.

Let's take a look at the economic conditions that led to this move, and what it means for those interested in buying a home or refinancing an existing mortgage.

Economic factors prompting a rate cut

The Fed meeting came after a week of political headlines, with Miran sworn in on Monday, and courts recently blocking President Trump's attempt to oust Fed Governor Lisa Cook over allegations of mortgage fraud.

Despite the noise, the Fed's focus remained on fundamentals — several of which justified a rate reduction to help sustain spending, including moderating inflation and a cooling labor market.

The U.S. Bureau of Labor Statistics reported that, as of August 2025, the Consumer Price Index for all urban consumers (CPI-U) rose about 2.9% year-over-year, while the CPI for Urban Wage Earners and Clerical Workers (CPI-W) was up about 2.8%. The Fed's target is 2% and inflation is still above that level. However, the pace appears to be slowing, giving policymakers room to ease without abandoning their inflation-fighting goals.

Signs of a weakening labor market also reduced the risk that rate cuts will overheat the economy, as the Bureau of Labor Statistics reported that unemployment edged up to 4.3% from 4.2%, while job and payroll growth slowed, with just 22,000 jobs added in August.

The Bureau of Labor Statistics also released preliminary revisions showing the U.S. economy added 911,000 fewer jobs than initially estimated through March 2025, while the U.S. Department of Labor reported that seasonally adjusted initial jobless claims rose to 263,000 in the week ending September 6 — the highest level for initial claims since October 23, 2021.

With the Fed's dual mandate including maximum employment along with controlling inflation, these clear signs of a weakening labor market, combined with the mounting recession risk and the fact that many other central banks have already responded to cooling inflation by lowering rates, today's rate cut was all but inevitable.

"Uncertainty about the economic outlook remains elevated," a post-meeting statement read. "The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen."

What does this mean for mortgage rates?

The Fed does not directly control mortgage rates, which are tied to Treasury bond yields. While Fed actions can influence financing costs, mortgage rates may not fall much further immediately, since markets largely anticipated today's cut. However, the Fed signaled that two more rate cuts are on the way this year, which could help to drive rates down further.

Still, economists expected more rate cuts in 2025 than have actually materialized, so it remains an open question whether the predicted future cuts will occur as anticipated.

Continued uncertainty over tariffs and questions about U.S. fiscal stability could also push treasury yields higher and keep mortgage rates elevated, as could investor concerns that the Fed is shifting focus away from inflation.

While some would-be homebuyers may be disappointed to find the Fed's announced cuts may not result in cheaper borrowing immediately, the fact remains that rates have already become more competitive, and sitting on the sidelines to wait for further declines may backfire if rates actually rise.