UBS Economics-US Economic Perspectives _FOMC cuts and signals more to come...-117809081

ab17 September 2025Global ResearchUS Economic PerspectivesFOMC cuts and signals more to comeFOMC lowers rates and core of participants indicate more to comeThe FOMC voted to lower the target range for the federal funds rate by 25 bp at today's meeting. The lone dissent was incoming FOMC member Stephen Miran, who dissented in favor of a 50 bp rate cut today. Looking at the assumptions of appropriate policy (Figure 3), 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 no obvious evidence that the newest members, Anna Paulson and Stephen Miran, had views of the neutral rate much different than those they replaced. Further examination may change that assumption however.With little change to the economic projections, we expect risk management to play an important role in the press conference. In addition, in order to keep a roughly similar economic outlook, Chair Powell might note that somewhat less restrictive monetary policy than previously assumed might be needed. We also expect a generally data dependent message as well. It is possible he could mention a "mid-cycle" adjustment. That is something Chairman Greenspan did twice, and Powell once in 2019, and each of the three reflected three 25 bp rate cuts.With the information thus far in line with our expectations, we continue to expect a 25 bp rate cut at the October FOMC meeting, and a 50 bp rate cut at the December FOMC meeting. We expect the October and November employment reports to be released at the start of November and December, respectively, to look weak, and motivate a larger rate cut to end the year. Overall, we maintained our outlook for a 2025 year end midpoint of the target range of 3.375%, and 3.125% next year.Figure 1: Summary of Economic ProjectionsFOMC September Summary of Economic Projections (medians)Variable:2025202620272028LRChange in real GDP1.61.81.91.81.8 June projection1.41.61.81.8Unemployment rate4.54.44.34.24.2 June projection4.54.54.44.2PCE inflation3.02.62.12.02.0 June projection3.02.42.12.0Core PCE inflation3.12.62.12.0 June projection3.12.42.1Federal funds rate3.63.43.13.13.0 June projection3.93.63.43.0Source: Federal Reserve Board, UBSThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 3. EconomicsAmericasJonathan PingleEconomistjonathan.pingle@ubs.com+1-21