September 23, 2025
Finally. After months of back and forth and speculation, the Federal Reserve has lowered its benchmark rate by 0.25%. While the August job numbers combined with the substantial downward revisions of jobs added during the past year pretty well clinched the fact that the Fed was likely to lower rates, there was still a decent amount of speculation swirling around the financial markets. And as we mentioned last week, the amount of the decrease was also up in the air. The fact that it has been nine months since the last time the Fed lowered rates added to the intrigue – in addition to the pressure being applied from various members of the administration.
With this action and their accompanying statement, it is clear that the Fed acknowledges that the economy is slowing, and the risk of a recession is as great as the risk of inflation. By themselves, each of these future scenarios would be detrimental to our standard of living. But having both for any substantial period of time would be absolutely devastating. Slow growth and inflation are an unwelcomed situation as we have also previously written about the risks of stagflation. But a recession accompanied by inflation would be a completely different story.
The fact that the Federal Reserve is balancing both risks right now is evidence of how hard a job the Fed has for the foreseeable future. How do we bolster the economy without igniting inflation? The implementation of higher tariffs makes the job even more complicated. Theoretically, these tariffs will bolster our economy in the long run, but in the short-term, higher inflation and decreased consumer consumption seem to be in the cards. Speaking of the short-term, the markets barely reacted to the Fed’s decision. This reaction was expected as the Fed’s action was not a surprise, and long-term interest rates had previously fallen in anticipation. Let’s hope the Fed’s balancing act navigates us through without experiencing these negative scenarios in the long run.
Source: Origination Pro
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