Economic and Market Commentary – September 2025

Similar to a year ago, September’s central bank policy meeting garnered much more heightened and momentous anticipation than most regularly scheduled, every 6-week FOMC gathering. As expected, on September 17, at the conclusion of the Fed’s sixth policy meeting of the calendar year, the FOMC resumed its policy normalization endeavor, enacting a 25 basis point rate cut to its overnight benchmark rate, lowering the federal funds target rate range to 4.00% - 4.25%. This was the first rate reduction since December 2024, and is purportedly a continuation of more closely aligning the Fed-controlled target rate range with the ambiguous long-term neutral rate. While 11 of 12 FOMC voters were in favor of resuming the policy normalization quest with a disposition of gradualism and only curtailing the range 25 basis points, newly appointed Federal Reserve Board Governor, Stephen Miran, cast the lone dissenting vote, instead favoring to reduce the target rate range 50 basis points. Ancillary, but more significant regarding the composition of the Federal Reserve Board of Governors, both a U.S. District judge issued, and the U.S. Court of Appeals upheld, an order that permitted Federal Reserve Board Governor Lisa Cook to remain on the Board and cast a vote at September’s meeting while her alleged mortgage fraud case is reviewed, rebuffing President Trump’s efforts to have her removed from her post.

In addition to the widely expected rate-cut decision, adhering to quarter-end months’ policy meeting protocol, the Fed released its updated Summary of Economic Projections (SEP), which provided deeper insights into the Committee’s assumptions and forecasted trajectory for the remainder of 2025. Revised from June’s projections, the change in real GDP was boosted to 1.6% from 1.4%. The unemployment rate, headline PCE inflation, and core PCE inflation, were all unchanged at 4.5%, 3.0%, and 3.1%, respectively. Regarding interest rates, the median federal funds rate was pared from 3.9% to 3.6%, indicating an aggregate expectation of two additional 25 basis point abatements before year end, while the longer-run neutral rate was maintained at 3.0%.

Examining and scrutinizing the updated dot plot elucidates the vast divergences that exist amongst Fed officials regarding the magnitude and scope of rate movements in the final quarter of 2025. Of the 19 policymaking members, 25 basis point rate shifts are as follows: One rate hike – one member; No further moves – six members; One rate cut – two members; Two rate cuts – nine members; Five rate cuts – one member. The wide dispersion in forecasts accentuates the prevailing economic uncertainty and the appropriate monetary policy response in relation to adjustments and transformations to trade, immigration, fiscal, and regulatory policies.   

At his post-meeting press conference, Fed Chairman Powell described the 25 basis point rate reduction as a “risk management cut”, a sentiment that had subsequently been echoed by many of his Fed colleagues. Although inflation remains above the Fed’s stated 2% target and is still the primary concern amongst a cohort of Fed officials, September’s rate cut was executed with the intention of preventing further deterioration in an ostensibly weakening labor market. Fueled by the rate cut, with projections of more to come before year end, stocks, bonds, and gold continued to surge, as equity market indices and bullion continued to cement new all-time highs, supported by falling yields across the curve.

U.S. Treasury yield curve underwent a negative butterfly twist as money market and long-dated bond yields recorded double-digit declines on the backdrop of September’s 25 basis point rate cut. 2yr – 7yr tenor yield moves were muted, and the 10yr yield fell 8 basis points.

2-year/10-year spread: 54 basis points

3-month/10-year spread: 21 basis points

2-year/5-year spread: 13 basis points

3-month/30-year spread: 79 basis points

U.S. Treasury Yield Curve Source: Bloomberg

September 2025 Macroeconomic Highlights

Inflation, Expectations, and Consumer Sentiment¹:

CPI: 2.9% year-over-year (+0.4% month-over-month); Core CPI: 3.1% year-over-year (+0.3% month-over-month)

PCE: 2.7% year-over-year (+0.3% month-over-month);Core PCE: 2.9% year-over-year (+0.2% month-over-month)

PPI: 2.6% year-over-year (-0.1% month-over-month); Core PPI: 2.8% year-over-year (-0.1% month-over-month) Core PPI less trade services: 2.8% year-over-year (+0.3% month-over-month)

Inflation Expectations: 1-year horizon: 3.2%, 3-year horizon: 3.0%, and 5-year horizon: 2.9%

Consumer Sentiment: 55.1 vs. 58.2 in August 2025; Current Conditions: 60.4 vs. 61.7 in August 2025

Consumer Expectations: 51.7 vs. 55.9 in August 2025

Labor Market²: The U.S. economy added +22,000 nonfarm payrolls in August, well below the +75,000 expected by economists surveyed by Bloomberg. Job gains in health care (+31,000) and social assistance (+16,000) were partially offset by losses in federal government (-15,000), wholesale trade (-12,000), and manufacturing (-12,000). 

• U-3 official unemployment rate: 4.3% vs. 4.3% expectation: +0.1% from July 2025.

• U-6 unemployment rate (marginalized, part-time workers for economic reasons): 8.1% (+0.2%).

• Labor force participation rate: 62.3% (+0.1%); Employment-to-population ratio: 59.6% (unchanged).

• Average hourly earnings for private nonfarm payrolls rose 10 cents to $36.53 (+0.3% month-over-month, +3.7% year-over-year).

• Revisions: July 2025 lifted +6,000 to +79,000; June 2025 slashed -27,000 to -13,000.

  
  

Gross Domestic Product (GDP)³: According to the third and final estimate, real GDP increased at an annual rate of +3.8% in the second quarter of 2025 vs. a decrease of -0.6% in the first quarter of 2025.

• Consumption: +2.5%; GDP Price Index: +2.1%; PCE Price Index: +2.1%; Core PCE Price Index +2.6%.

• Real disposable personal income: +3.1% vs. +2.3% in the first quarter of 2025.

• Personal savings rate as a percentage of disposable income: 5.3% vs. 5.2% in the first quarter of 2025.

• Average of Real GDP and Real GDI: +3.8% vs. +0.2% in the first quarter of 2025.

Housing Market⁴: Existing-home sales shrank -0.2% (month-over-month) from July to a seasonally-adjusted annual rate of 4.00 million in August. Month-over-month sales in the Northeast and South receded -4.0% and -1.1%, respectively, while sales in the Midwest and West climbed +2.1% and +1.4%, respectively.

• Year-over-year sales expanded +1.8%, up from 3.93 million in August 2024.

• Total housing inventory registered 1.53 million units, -1.3% from July, but +11.7% from one year ago (1.37 million units). Unsold inventory sits at a 4.6-month supply at the current sales pace.

• The median existing-home price for all housing types was $422,600, +2.0% from August 2024 ($414,200), as prices rose in all four major U.S. regions.

• Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.30%.

• New Home Sales: 800,000 (+20.5% month-over-month).

1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers

2 Source: Bureau of Labor Statistics (BLS)

3 Source: Bureau of Economic Analysis (BEA)

4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development

SWSCM Economic and Market Commentary - September 2025.pdf

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