Fed Rate Cuts: Current and Anticipated Economic Outlooks

On September 17, the Federal Reserve finally cut short-term interest rates by a quarter point to a target range of 4% to 4.25%. (1)

Rather than a response to a clear economic downturn, Fed Chair Jerome Powell referred to it as a “risk management cut,” a move meant to guard against growing economic uncertainty following signs of a cooling job market and moderating inflation. (2)

Markets expected the move, and much of the impact was already priced in. 

By September 17, mortgage rates had already dropped slightly, with the average 30-year fixed coming in at 6.35%, down 20 basis points over the past month. (2)

The 10-year Treasury yield hardly moved after the Fed’s announcement. (2)

And now the natural question is: What's next?

Federal Reserve May Cut Rates Twice More This Year

One rate cut won't solve anyone's financial woes. The expectation, though, is that the current economic conditions could give the Federal Reserve more room to cut rates possibly twice more this year. (1)

The first opportunity for the Fed to initiate a quarter-point cut is at its next meeting in late October. The second opportunity for another quarter-point cut lies in the final meeting of the year in mid December. (1)

As for 2026, rates could drift further downward, or the Fed may pause. (1)

Some economists are tentatively forecasting for the Fed to hold rates steady in October and make another quarter percentage point cut in December. (1)

More aggressive action could end up replicating the rate cuts that the Fed initiated at its last three meetings in 2024, when the Fed ultimately reduced rates by a full percentage point. (1)

As it stands, the Fed is pulled in opposite directions by rising inflation on the one hand and weak hiring on the other. (1)

Stagflation, Tariffs, and the Big Beautiful Bill

Throughout 2025, the economy has suffered a sharp hiring slowdown alongside a rise of inflation, setting the conditions for what economists call "stagflation." (3)

As a result, Fed policymakers are in a bind. If the Fed raises interest rates in an attempt to protect against tariff-induced inflation, it risks turning the economy into a downturn. On the other hand, if the Fed lowers rates to stimulate the economy in the face of a hiring slowdown, it threatens to boost spending and worsen inflation. (3)

Within the Big Beautiful Bill, there are tax cuts that may help some people when they file their tax returns next year, including retirees and affluent households who pay high state and local taxes. The cuts may give consumer spending and possibly hiring a boost. (1)

On the inflation front, higher tariffs are putting pressure on profit margins, leading to price hikes on many goods. The risk that inflation hangs around is elevated since inflation expectations remain high. (1)

Housing Update

The rate cut will have a direct, beneficial effect on builders, especially those relying on acquisition, development, and construction (AD&C) loans. These loans are important when it comes to getting new homes built, particularly by private builders, who currently construct more than 60% of the country’s single-family homes. (2)

Lower borrowing costs for builders could help ease housing supply constraints across the country as well. (2)

Powell, however, acknowledged that the housing market remains weak. Many of the issues, including high regulatory costs and a persistent housing shortage, can’t be solved by monetary policy alone.

Looking Ahead

The broader economic outlook points to slower growth moving forward. With the Fed predicting the GDP will grow just 1.6% in 2025, and a slight increase in unemployment to around 4.5%, inflation is expected to gradually decline.  But the Fed doesn’t see its 2% target being met until 2028, highlighting how persistent inflation pressures continue to be. (2)

Overall, while September’s rate cut was expected, it signals a shift in tone. The Fed is opening the door to further easing, but as Powell emphasized, future moves will depend entirely on how the economic data evolves. (2)

Article Sources: 

(1) Tompor, Susan. “Federal Reserve cuts interest rates: What’s next for credit cards, auto loans, mortgages.” USA Today. September 24, 2025. https://www.usatoday.com/story/money/2025/09/24/fed-cuts-rates-credit-cards/86324993007/. Accessed September 24, 2025. 

(2) “What the Fed Rate Cuts Mean for Housing and the Economy.” NAHB. September 18, 2025. https://www.nahb.org/blog/2025/09/fed-cuts-rates. Accessed September 24, 2025. 
(3) Zahn, Max. “Fed Chair Powell says rising inflation and slow hiring pose 'challenging situation.’” ABC News. September 23, 2025. https://abcnews.go.com/Business/fed-chair-powell-rising-inflation-slow-hiring-pose/story?id=125857000. Accessed September 24, 2025.