The Fed will reduce interest rates in September? Don’t be so sure

Inflation remains above the target.

Dr. Bill Comerno uses data from the Bureau of Economic Analysis

Jerome Powell has accumulated That the Federal Reserves Called interest rates at its meeting 16. to 17. September 2025. Financial markets The image There are 86% chance that the Federal Committee in the Open Market will reduce the Federal Fitness Stope for one quarter of the percentage point (of this writing). But that the week is the chance of changing does not deserve consideration. Continuous inflation above two percentage of the goal is hardly strong without a change in September or indeed until the end of the year.

Inflation remains above the target

FED’s preferred inflation measure (The Personal spending costs excluding food and energy) He never went down to target. Inflation fell sharply from the top 2022. year, but Fed never received speed to two percent. In 30 years before the pandemic, the actual inflation was within half a percentage of the goal, most of the time, with a long stripe under the goal. So the goal is achievable.

Tariffs complicate the calculation of inflation. Past studies Fed studies have concluded that it would be best to ignore changes in price caused by tariffs. They would probably be disposable shift levels that do not start greater inflation in the year. For a rough calculation, start the inflation rate before President Trump took office: 2.9%, after in the previous year, from 2.6% and 3.1% in the previous year. It was stable but above the goal.

We have seven reads so far in 2025. years ranging from 2.6% to 2.9%. The surface seems to change the inflation. Calculations based on tariff revenues suggest that prices may have jumped by 0.6%, if they are fully forwarded to consumers.

Although the complete passage is probably in the long run, that is very unlikely in the short term. Sellers may have reduced prices for about half tariffs so far. (That, however, will not last long.)

At the next meeting with food, cutting counselors can bring the case that upright inflation falls when we consider tariffs and dollars in foreign exchange markets. It is still above the target by any calculation, but it may be moving in the right direction. Economists in the FED are managed by numbers in much more detail to arrive at their assessment of basic inflation.

Employment remains solid

The unemployment rate was a rough level of the last 12 months, recently 4.2%. It was slightly lower, up to 3.4% once, in 2022. and 2023. years. This rate is generally considered unsustainable. Unemployment is never zero, because it takes time for job seekers and employers find good games. The Assessments of the Congress Budget Natural unemployment rate by 4.3%. This is the unemployment rate “resulting from all sources other than fluctuations in total demand for goods and services”.

CBO also assesses the potential level of GDP. The actual GDP is less than one percent below potential and unusually low spread.

Economists usually look at new work affairs, but immigration is now very low, making these digits as useless as a measure as the economy does.

The dismissals have made some titles, but the total number of people who are submitted to ensure unemployment is unusually low. The number of voluntary stops and dismissals is level, and is easy to employ.

Rolling all the data on work, the economy is currently in good condition, certainly not bad enough to justify the easier monetary policy. The Fed believes, however, that the current interest rates are restrictive, so the economy will slow down if nothing is done.

Economic forecasts The best argument to reduce rates

Economists generally predict growing unemployment. The Research of professional forecastersI compiled with Federal Filadelphia Spare Bank, see unemployment that increases with 4.5% to mid 2026. years. It is not a worrying level at any time, but a suitable small interest rate would be suitable. We cannot oversize at economic forecasts (and this is written by forecast), but should not be completely ignored.

A quarter of spots in the daylight cannot bring a big difference in the economy, although the entire sequence of a quarter could.

Why is Fed focusing on inflation

Many are wondering why the federal reserve focuses so much on inflation. In short, it seems that the releases should be more important than the inflation rate. But economists have viewed the long-term implications of various policies. Suppose someone is not interested in inflation, but wants a good labor market: jobs available for those who want them, with very few release. What economic environment creates this happy labor market?

Low and constant inflation rate bring low and constant unemployment. This is a conclusion based on multiple studies and American economic histories, as well as foreign countries. Inflation-unemployment can also exist in the short time, but there is no time. We can also get low and constant unemployment when we are looking for low and constant inflation.

Given the uncertainty of economic forecast, it will probably be votes at the next Fed meeting that arguing against the reduction rate at the time, for all the above reasons. And for the main reason that small inflation is incredibly important for a healthy labor market.