The Federal Reserve's interest rate cut is all about this! Five pictures to understand the decision password in seconds

The Fed's interest rate decision, due at 2pm local time on September 17 (2am Beijing time on September 18), could be the most influential decision of 2025, which most economists predict will lead to the first rate cut of 2025. The real suspense is how much the rate cut will be, and whether the Fed will signal a broader policy shift that will set the tone for the rest of the year.

So far, the Fed has refrained from lowering the base rate, which directly affects the cost of borrowing for businesses and consumers, at the behest of President Trump, who has pointed to relatively subdued inflation this year as evidence that the Fed has been too slow to cut borrowing costs.

In addition to Trump's pressure to cut interest rates, the Federal Reserve is also facing growing economic uncertainty ahead of its September 17 meeting, which has increased the risk weighting of interest rate decisions.

On the one hand, the labour market is showing signs of weakness: hiring has stalled, making the case for a rate cut. But on the other, inflation is creeping up under the pressure of the Trump administration's tariffs - the reason the Fed has kept its base rate unchanged this year.

Complicating matters further is Trump's pressure on the Federal Reserve to cut interest rates, with Fed Chair Jerome Powell responding by emphasizing the Fed's independence, noting that the FOMC's decision-making is based on economic data rather than political pressure.

Erasmus Kirstin, an economics professor at Villanova University, said: "The committee needs to comprehensively assess the biggest downside risks to the economy and weigh them at the end of the meeting - that is both science and art."

When will the Federal Reserve announce its interest rate decision?

The Federal Reserve will release its latest interest rate decision on September 17 at 2:00 pm EST (2:00 am Beijing time on September 18).

According to the CME FedWatch tool, the probability of a rate cut of 25 basis points is 96%, and the tool also states that the probability of a significant rate cut of 50 basis points is only 4%.

Economists will also be watching closely to see if the Federal Reserve will provide forward guidance on the path of rate cuts at its next two meetings in 2025, in October and December.

What data will determine the Federal Reserve's decision-making?

The Fed has a so-called "dual mandate" to keep inflation low while achieving full employment.

However, these two goals may conflict:Rising inflation needs to be contained by the Federal Reserve through interest rate hikes, which raise the cost of borrowing for businesses and consumers, thereby suppressing spending; conversely, the most effective response to high unemployment is to cut interest rates, which reduce the cost of business expansion and promote hiring。

After inflation surged to a 40-year high in 2022, the Federal Reserve continued to raise the base rate. With inflation falling back in 2024, the Fed initiated a rate-cutting cycle, but has kept rates steady since December.

Fed officials will closely scrutinize inflation and employment data to weigh which of the dual mandates needs priority attention.

(Comparison chart of the federal funds rate and CPI trends)

Meanwhile, the labour market is showing signs of weakness: a number of industries, including manufacturing, which Mr. Trump has vowed to revive, saw job cuts in August. That led to a significant slowdown in hiring, with employers adding just 29,000 jobs a month between June and August, well below the monthly average of about 106,000 in 2024.

"It's going to be very difficult to balance these two conflicting goals, but that's the challenge the Fed has to face," Mr. Kirstin said.

(U.S. monthly employment change chart)

Does the United States have different challenges from other countries?

Trump criticized the Federal Reserve's inaction this year by comparing the decisions of other central banks, noting that institutions such as the Bank of England and the European Central Bank have cut borrowing costs.

"Europe has cut interest rates 10 times and we haven't cut them once," Mr. Trump wrote in a June social media post. "No inflation, strong economy - our rates should be reduced by at least two to three percentage points!"

(Comparison chart of policy interest rates in major global economies)

However, the United States is facing an urgent dilemma that no other country has encountered: the tariffs imposed by Trump。

Since tariffs are import taxes paid directly by US companies to the federal government, their costs are borne primarily by US companies and consumers, rather than by other countries. The White House claims that overseas exporters are the main recipients of tariffs, while Trump administration officials argue that more balanced trade with US economic partners will create jobs, revive manufacturing and generate revenue for the federal government in the long run.

With many economists arguing that import tariffs will reignite US inflation, Federal Reserve Chairperson Jerome Powell has cited them as one reason for the Fed's caution. The closely watched inflation gauge, the CPI, rose 2.9 per cent in August from a year earlier, its biggest gain since January. The CPI data showed that goods highly dependent on imports such as coffee, audio equipment and household furniture rose the most last month.

If other central banks slow the pace of easing and the Federal Reserve accelerates rate cuts, the dollar's relative spread advantage shrinks.

How affordable are American consumers?

Many Americans are becoming pessimistic about the economic outlookRising costs on everything from housing to groceries are weighing on them.

A recent CBS News poll found that two-thirds of Americans say prices have continued to rise in the past few weeks, and the same proportion expect the trend to continue. More than half of consumers believe the US economy is worsening, while only about a quarter believe it is improving.

Since falling to an annual rate of 2.3% in April (slightly above the Federal Reserve's 2% target), the CPI has continued to climb.

(Credit card overdue trend chart)

At the same time, President Trump has pointed to mortgage rates approaching 7% for most of 2025 as contributing to the weakness in the housing market.

In a social media post on Aug. 19, the president wrote: "Can anyone tell Powell that he is always too late and that he is seriously hurting the housing sector? People can't get mortgages because of his policies. There is no inflation at all right now and all signs point to a big rate cut."

(Average interest rates on 30-year fixed-rate mortgages in the United States)

But mortgage rates, which have fallen to 6.35 per cent in the week of September 11 in anticipation of Fed rate cuts and weak economic data, depend on a variety of factors, including the strength of the US economy and the yield on 10-year Treasuries.

Experts point out that even so,Interest rate cuts could still ease pressure for some consumers by lowering borrowing costs。

Stephen Cates, financial analyst at Bankrate, said in an email: "A lower interest rate environment will provide breathing space for borrowers, whether homeowners with 7 per cent mortgages or recent graduates looking to restructure student loan and credit card debt. Lower rates will ease the burden on many indebted households through opportunities for refinancing or debt consolidation."