Federal Reserve officials are treading carefully as they weigh the next steps for U.S. interest rates, with the debate heating up just weeks ahead of the central bank’s October policy meeting. In a series of speeches and interviews on September 22, 2025, leading figures at the Fed cast doubt on the need for further rate cuts, even as the U.S. economy faces persistent inflation and a labor market showing signs of strain.
St. Louis Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic took center stage in these discussions, both emphasizing the delicate balance the central bank must strike between supporting employment and curbing inflation. Speaking at the Brookings Institution in Washington, D.C., Musalem was clear: “I supported the 25-basis-point reduction in the FOMC’s policy rate last week as a precautionary move intended to support the labour market at full employment and against further weakening,” he said, as reported by Reuters. “However, I believe there is limited room for easing further without policy becoming overly accommodative, and we should tread cautiously.”
Bostic echoed these sentiments in an interview with The Wall Street Journal, stating, “I am concerned about the inflation that has been too high for a long time. And for me, I think it’s important that we continue to signal the importance of that.” He added that the recent 25-basis-point cut—bringing the benchmark rate to a 4.00%-to-4.25% range—was likely the only one needed this year, given inflation remains about one percentage point above the Fed’s 2% target. When asked about the possibility of another cut at the Fed’s next meeting in October, Bostic was noncommittal: “I today would not be...in favour of it, but we’ll see what happens.” It’s worth noting that Bostic is not a voter on rate policy this year, but his views reflect the cautious mood among many Fed officials.
The central bank’s decision last week to lower rates was its first such move since early 2017 and came against a backdrop of mounting economic uncertainty and political pressure. According to Reuters, the cut was made as a “precautionary move” to support the labor market, which, while still near full employment, has seen job gains slow and the unemployment rate tick up to 4.3%. The October 28-29 policy meeting looms large, with officials set to consider a relatively slender set of new data—primarily September’s employment and inflation reports—before making their next move.
Fed Governor Stephen Miran, who was sworn in just moments before the September 17 meeting, has quickly become a vocal figure in the debate. Miran dissented at the last meeting, advocating for a more aggressive half-point cut and arguing for steeper reductions through the rest of 2025. He was expected to lay out his rationale in greater detail during a speech in New York later on September 22, as reported by Reuters. Meanwhile, Fed Chair Jerome Powell was scheduled to speak in Rhode Island the following day, continuing what has been a flurry of public commentary from top officials.
The Fed’s internal divisions are now front and center. While the median projection among policymakers is for two more quarter-point reductions by the end of 2025, a significant minority—seven officials—see no further cuts as appropriate. This split reflects deeper uncertainties about the U.S. economic outlook, with officials weighing the risks of persistent inflation against the potential for a rapid weakening of the labor market.
Minneapolis Fed President Neel Kashkari, for example, has warned that “the more likely risk is a rapid further weakening of the labor market.” In an essay published Friday, Kashkari wrote, “We know from past economic cycles that when labor markets weaken, they can weaken quickly.” His support for the recent quarter-point cut was rooted in concerns that job losses could accelerate if the Fed does not act preemptively.
But inflation remains a stubborn foe. Policymakers expect it to hover about one percentage point above the central bank’s 2% target through the end of 2025, with a median projection of 3.1% for year-end core Personal Consumption Expenditures (PCE) inflation—higher than the 2.9% recorded in July and the third consecutive monthly increase. Under normal circumstances, such figures might prompt talk of rate hikes rather than cuts. Yet, as Reuters notes, officials have come to see some of the current inflation as the result of one-off factors, particularly tariffs imposed by the Trump administration.
Chair Powell addressed this dynamic at his post-meeting press conference, stating, “A reasonable base case is that the effects on inflation will be relatively short-lived—a one-time shift in the price level.” He cited estimates that tariffs are currently adding around 0.3 to 0.4 percentage point to core PCE inflation, but added, “Tariffs are...mostly being paid by the companies that sit between the exporter and the consumer. To the consumer the pass through has been pretty small. It has been slower and later, slower and smaller, than we thought.”
Policymakers are also closely monitoring the September jobs report, due October 3, which will be a key input for the October policy meeting. While the overall unemployment rate remains modest, the slowdown in job gains and the stagnation in labor force participation—attributed in part to tighter immigration policies—have raised concerns about the underlying strength of the labor market. Officials are now examining more granular indicators, such as the unemployment rates among minorities and young workers, and the average length of the workweek, to gauge the true state of employment.
The political context adds another layer of complexity. The Fed is facing renewed pressure from President Trump to lower rates, and the recent appointment of Governor Miran—who joined while on leave as chair of Trump’s Council of Economic Advisers—has stoked debate about the central bank’s independence. Trump has also asked the Supreme Court to allow his attempted firing of Fed Governor Lisa Cook to proceed, underscoring ongoing tensions between the White House and the Fed.
As the October meeting approaches, the Fed’s path forward remains uncertain. With only a handful of new data points to guide them, officials must decide whether to continue cutting rates in the face of persistent inflation or hold steady and risk a sharper downturn in the labor market. The stakes are high, and the divisions among policymakers reflect the real difficulty of charting a course through today’s economic crosswinds.
The coming weeks will be crucial, as the Fed weighs the risks and seeks to balance competing priorities. For now, the message from officials like Musalem and Bostic is clear: caution is warranted, and the central bank is in no rush to ease further—at least, not without compelling evidence that the risks of inaction outweigh the dangers of moving too quickly.
