Fed Faces Stagflation Test as Meeting Kicks Off — Evening Brief – 09.16.25  

The Federal Reserve kicked off its two-day policy meeting today under the weight of stagflationary conditions, with inflation accelerating and the labor market weakening at the same time. Headline CPI rose 0.4% in August, pushing annual inflation to 2.9%, the fastest pace since January, while core CPI held at 3.1%. On the jobs front, payrolls added just 22,000 positions in August, the unemployment rate climbed to 4.3%, and the Bureau of Labor Statistics revised down nearly one million jobs from the prior year—signaling a more fragile labor backdrop than previously thought. 

Against this backdrop, Fed officials face a difficult balancing act: cut rates too quickly and risk fueling inflation, or move too slowly and allow further job market deterioration. The dilemma is intensified by President Donald Trump’s renewed tariffs, which have injected fresh volatility and uncertainty into the global economy with shifting rollouts and inconsistent details. 

Markets widely expect a quarter-point cut on Wednesday, but all eyes are on the Fed’s updated “dot plot,” which could reveal divisions over the pace of easing. While newly confirmed Fed voter Stephen Miran is expected to advocate for aggressive action, potentially a 75-basis-point cut, others such as Governors Christopher Waller and Michelle Bowman may push for half-point moves. By contrast, hawkish regional Fed presidents Jeffrey Schmid and Alberto Musalem could dissent in favor of holding rates steady. 

With political pressure mounting and core inflation still sticky at 3.1%, Wall Street anticipates Powell will emphasize patience, flexibility, and a meeting-by-meeting approach. Yet the mix of economic weakness, tariff uncertainty, and partisan scrutiny makes this one of the Fed’s most precarious decisions in recent years.