Fed set to lower interest rates despite rising inflation

Summary

The Federal Reserve is widely expected to start cutting interest rates on 17 September, beginning a modest easing cycle despite recent upward pressure on inflation. Fed chair Jay Powell signalled a shift towards cuts at Jackson Hole, and weaker jobs data has increased concern about downside risks to employment. Financial markets now price a quarter-point cut in September and further reductions through the year, while the FT’s Monetary Policy Radar team expects a cautious initial cut and a pause before additional easing later in 2025 and into 2026.

Source

Source: https://www.ft.com/content/15bc46c9-a8df-4ed9-9cc3-9a844edb7e80

Key Points

Markets expect the Fed to cut rates by 25 basis points on 17 September, kicking off a sequence of reductions.
Powell’s Jackson Hole remarks signalled openness to easing, shifting the Fed discussion towards supporting employment.
Labour market softened: only 22,000 jobs added in August and downward revisions to prior months, though unemployment remains around 4.3 per cent.
Inflation is rising — headline CPI at 2.9 per cent in August and FT’s core inflation measure at about 3 per cent — partly driven by tariffs.
The Fed is internally divided: several officials have pivoted more dovish, but some remain cautious about price pressures.
Analysts and market pricing moved quickly after Jackson Hole; the main risk is a faster-than-expected cut cycle prompting a renewed inflation shock.
Political pressure and upcoming appointments (including a new chair next May) could influence a longer-term easing trajectory into 2026.

Content Summary

The FT’s Monetary Policy Radar argues the Fed will begin with a cautious quarter-point reduction to a 4.00-4.25 per cent policy range in September, signalling vigilance on both inflation and employment risks. Weak August payrolls and softer labour-market indicators have increased the case for cuts, even as inflation has ticked higher because of tariffs and broader price pressures.

Central bankers’ public comments have shifted since Jackson Hole: a number of Fed officials now give more weight to downside risks to employment, while others remain concerned about inflation persistence. Market participants and many analysts have revised forecasts to expect multiple cuts this year, though the FT warns a faster easing path could risk a difficult inflation rebound later.

Context and relevance

This story matters because it shapes borrowing costs, asset prices and exchange-rate moves globally. A Fed pivot influences mortgage rates, corporate financing costs and the valuation of risk assets — and it tests the Fed’s credibility on inflation-fighting. It also signals how monetary policy balances risks from tariffs (upwards on prices) against a cooling labour market (downwards for employment), with political developments likely to matter for the medium-term policy mix.

Author

Punchy take: the FT team compresses a complex policy pivot into why it matters for markets and households now — this is a live tilt in central-bank thinking, not a quiet technical tweak.

Why should I read this?

Short answer: because it affects your wallet and your portfolio. Mortgages, savings rates and stock-market bets all depend on whether the Fed tightens or eases — and this piece explains why the Fed may start cutting even though inflation is creeping up. We’ve read the detail so you don’t have to: it flags the trade-offs, the risks and the likely path ahead.