UBS Economics-US Economic Perspectives _FOMC Step toward _more neutral_ s...-117809333

ab17 September 2025Global ResearchUS Economic PerspectivesFOMC: Step toward "more neutral" stanceFOMC moves to take out downside risks to the labor marketMotivated to underwrite the labor market expansion, the FOMC decided to lower the target range for the federal funds rate at today's meeting and signal more reductions likely to come. The FOMC statement said the Committee "judges that downside risks to employment have risen." In the press conference, Chair Powell leaned on the balance of risks shifting, similar to his Jackson Hole speech, saying downside risks to the labor market had increased. Accordingly, the FOMC judged it appropriate to take another step toward a more neutral policy stance, he said.Chair Powell explained the shift in appropriate policy compared to June, as risk management. He said that labor demand had slowed sharply, and by more than labor supply growth had slowed due to immigration and declining labor force participation. He said that the labor market no longer could be described as "solid". He did not dismiss concerns over inflation, but emphasized the need to weigh the risks to each leg of the dual mandate."We should move in the direction of neutral," he said "This is quite an unusual situation … our tools can not do two things at once." "Downside risks have risen, so we are moving in a more neutral direction," he said, again. He also stressed that the path ahead would be data dependent, and rather than look at the Summary of Economic Projections, and the signal of three rate cuts this year with certainty, "look at this through the lens of probability," he said; the FOMC is not on a preset course. That said, he also went on to say, that addressing the risks is not about just one rate cut, but one has to look at the path. In addition to the Summary of Economic Projections, the press conference suggested to us that the FOMC's base case is more rate cuts to come.Chair Powell avoided wading into the questions about political interference and Federal Reserve independence.Entire FOMC wanted lower rates at this meetingThe members of the FOMC all voted to lower the target range for the federal funds rate at this meeting, all but one by 25 bp. The lone dissent was incoming FOMC member Stephen Miran, who dissented in favor of a larger 50 bp rate cut today. Looking at the assumptions of appropriate policy (Figure 2), we would guess that he argued that 150 bp of rate cuts would be appropriate this year. In the Summary of Economic Projections, the median participant assumed three 25 bp rate cuts would be appropriate this year. That was in line with our expectations, and below the consensus on Bloomberg. In the so-called "dot plot," that brought the year-end medians down to 3.6%, 3.4%, and 3.1% in 2025, 2026, and 2027, each in line with our preview two weeks ago. The 2028 median maintained that slightly above neutral stance of policy at 3.1%. Table below.The median longer run rate remained at 3.0%, but there was some upward drift and