As anticipated, the Federal Reserve has responded to economic uncertainty and a sagging jobs market by lowering the target range for the federal funds rate by 0.25 percentage points to 4% to 4.25% at the conclusion of its Federal Open Market Committee (FOMC) meeting Wednesday afternoon. This marked the first time in 2025 that the Fed has cut rates, and put an end to a streak of five consecutive meetings where the federal funds rate was held steady at 4.25%-4.50%.
“Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” said the Federal Reserve in a statement. “The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
The Fed’s decision comes under pressure from the Trump administration to drop rates, amid accusations of mortgage fraud by one of the Fed Governors, and a continued war of words between President Trump and Federal Reserve Chair Jerome Powell over breaking the budget on renovations to the Federal Reserve headquarters in D.C.
“Federal Reserve rate cuts are a positive signal for borrowers and are expected to contribute to a continued, gradual downward trend in mortgage rates,” said Cotality Chief Economist Dr. Selma Hepp. “However, the trajectory for the rest of 2025 will be influenced by a complex interplay of the Fed’s actions, the bond market’s reaction, ongoing inflationary pressures, and the fundamental supply and demand dynamics within the housing market.”
Voting for the monetary policy action and .25 percentage point cut were Fed Chair Powell; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by ½-percentage point at this meeting.
The drop in rates coincides with a continued dip in the 30-year fixed-rate mortgage (FRM) which, according to Freddie Mac, fell 15 basis points week-over-week to 6.35% last week, marking the largest weekly drop in the past year.
“Though the improvement is modest, housing’s sensitivity to rates means even small declines can unlock demand. If rates fall further, it could unlock additional demand—potentially fueling a pickup in both purchasing and refinancing activity as affordability improves and more buyers and sellers re-enter the market,” said First American Senior Economist Sam Williamson.
Another concern coming out of the FOMC meeting was slow U.S. job growth, as the U.S. Department of Labor (DOL) reported the advance figure for seasonally adjusted initial unemployment insurance claims in August was 263,000, an increase of 27,000 from the previous week’s revised level, marking the highest level for initial claims since October 23, 2021 when it was 268,000. There are now more unemployed people seeking work than there are job openings, according to CNN as new applications for jobless benefits in the week ending September 6 rose to the highest level in nearly four years, and in August, the number of people unemployed for more than 26 weeks reached its highest level since November 2021.
“Right now, the economy is caught between a rock and a hard place—or more accurately, between a labor shock and a hot pace,” added Bankrate Financial Analyst Stephen Kates, CFP. “A weakening labor market is competing for attention with persistently rising inflation. Recent reports on initial jobless claims and the Consumer Price Index (CPI) underscore the growing challenges Americans face, both as workers and as consumers.”
The Other Story
The Fed’s rate drop occurs amid a backdrop of political drama as the Trump administration, who had been pushing for rate cuts to stimulate the nation’s economy for months, has stood toe-to-toe with the Fed.
It all began with accusations and public attacks via social media against Fed Chair Powell in early July, when President Donald Trump asked Powell to tender his resignation over past comments to lawmakers. Trump took to Truth Social using his nickname for Powell: “‘Too Late’ should resign immediately!!!”
Powell was accused of lying to Congress after he denied that a $2.5 billion renovation of the Fed’s D.C. headquarters will load the facility with lavish amenities.
Powell’s testimony before the Senate Banking Committee sparked outrage because the renovation plans to the Fed’s HQ contradicted the Fed’s own planning documents that were signed off by U.S. government in 2021, and the plans had not been revised since. Other costs, such as elevator repairs that travel directly to Federal Reserve Board members’ offices and marble fixtures, were part of basic upkeep of that had always been in the building, Powell said.
The attacks on Powell were followed by accusations by the Trump administration, specifically Federal Housing Finance Agency (FHFA) Director Bill Pulte, alleging mortgage fraud by Federal Reserve Governor Lisa Cook after she designated a Michigan home and an Atlanta condominium as primary residences on loan applications.
After Pulte’s charges against Cook became public, President Trump dismissed the Federal Reserve Governor over mortgage fraud allegations via a letter posted to Truth Social.
“Pursuant to my authority under Article II of the Constitution of the United States and Federal Reserve Act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately,” said President Trump in the letter. “The Federal Reserve Act provides that you may be removed, at my discretion, for cause, See 12 U.S.C. 242. I have determined that there is sufficient cause to remove you from your position.
Cook fired back, filing a lawsuit claiming that the President lacks the authority to remove her from her position. In the suit, filed in federal court in Washington, D.C., Cook claims Trump violated a federal law allowing him to remove a Fed governor only “for cause.” Cook also filed a motion seeking a temporary restraining order declaring that Trump’s efforts to fire her are unlawful, and bars the Fed from taking steps to remove her pending further litigation.
And earlier this week, and ahead of the FOMC meeting, Dr. Stephen I. Miran took the oath of office as a member of the Board of Governors of the Federal Reserve System. On Monday, the U.S. Senate narrowly confirmed Dr. Miran, a Trump appointee to the Fed to the Federal Reserve Board by a 48-47 vote. Miran was nominated by President Donald Trump after Adriana Kugler’s resignation from the Federal Reserve’s Board of Governors in early August. Dr. Miran will serve out Kugler’s term, which expires January 31, 2026.
According to CNN, Miran is credited with development of which became President Trump’s tariff policy, and has been a firm supporter of Trump’s economic agenda.
“The September Fed projections roughly match the market anticipation through the end of 2025, which suggests a 25 basis point rate cut at each meeting through the end of the year (a total drop of 75 basis points). The market remains ahead of the Fed in 2026, expecting that the Fed Funds rate will reach 3.0%, the long-run expected policy rate, by mid-year. By contrast, Fed participants still expect the federal funds rate to remain slightly above 3% through the forecast horizon, which now runs through late 2028,” said Realtor.com’s Chief Economist Danielle Hale. “This ongoing gap between market and Fed expectations means that some risk of upward pressure on mortgage rates remains, but for now, consumers have already benefited from the drop in mortgage rates that has brought mortgage rates below 6.5% for the first time in nearly a year and is likely to continue at least through this week. ”
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