The Federal Reserve’s Federal Open Market Committee (FOMC) is set to meet on September 16–17, 2025. As the U.S. central bank, the Federal Reserve (the Fed) sets interest rates, manages the money supply, and regulates financial markets.1 It meets eight times a year to formulate monetary policy, and the decisions released after each meeting can affect credit availability and the interest rates paid by businesses and consumers.2
As this meeting quickly approaches, here are three key areas to watch as each signals how the Fed may use interest rates to guide the economy:
1. Inflation
The Fed aims for inflation that averages 2% over time, making it one of the clearest indicators of where rates may go next.3
- If inflation is rising: Consumer prices are projected to increase, reducing customers’ purchasing power. The Fed may raise interest rates to bring inflation down.4
- If inflation is falling: A drop in inflation (deflation) means prices are expected to decline. Persistent deflation can lead to lower wages and weaker demand for goods. In this case, the Fed may lower interest rates to stimulate the economy.
2. The economy
Overall economic activity also influences Fed policy. While growth supports consumer confidence and spending, it can sometimes fuel higher inflation.
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- Economic expansion: When Gross Domestic Product (GDP) rises, businesses and consumers typically spend more. Strong growth, however, can increase inflation pressures.5
- Economic contraction: When GDP declines, wages and spending may fall, prompting the Fed to lower rates to encourage economic activity.6
3. Employment
Although the Fed doesn’t set a fixed target for employment, it does estimate an optimal level of jobs in the economy and uses that outlook to shape policy.
- Strong job gains: The U.S. Bureau of Labor Statistics measures job growth.7 Gains are considered robust when new jobs rise significantly and unemployment falls.
- Weaker job gains: Higher interest rates can slow hiring and push unemployment up. This weakens consumer spending, which may lead the Fed to consider lowering rates.8
No one can predict exactly what the Fed will decide next week. But by keeping an eye on inflation, economic growth, and the current state of the job market, you’ll gain a clearer sense of where interest rates may be headed and how those changes could affect your customers’ bottom line.
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