Rates of Seasonal Change
Submitted by Atlas Indicators Investment Advisors on September 29th, 2025
Like the first crisp breeze that signals summer’s end, the Federal Reserve’s decision to lower the overnight interest rate on Wednesday suggests a chill in the economic air, one marked by growing concern over the labor market.
The Federal Open Market Committee (FOMC) operates with two mandates: full employment and price stability. For nearly 14 years, price stability has been explicitly defined as a 2.0% inflation rate. Full employment, however, is more elusive; its definition changes with the economic environment, much like the relative humidity of autumn air. While the FOMC does not offer a fixed estimate, its recent policy stance implies that full employment is either not being achieved or is at risk in the months ahead.
Earlier this month, the August 2025 Consumer Price Index (CPI) report from the Bureau of Labor Statistics showed inflation still running warm, rising 0.4% for the month and 2.9% over the past year, well above the FOMC’s target. Though the future path of inflation is uncertain, recent monthly averages (June through August) suggest a steady pace of 0.3%. If that trend continues into September, headline CPI could reach 3.0% year-over-year. Extending the same estimate into October would push the annual rate to 3.1%, indicating a potential acceleration just as monetary policy begins to ease.
Southern California went through a dramatic cooldown last week only to have temperatures shoot higher this week. Similarly, the economy may be transitioning into its own autumn (evidenced by concerns in the labor market), yet the heat of inflation has not fully dissipated. Just as fall ushers in preparation for winter, policymakers are now facing a conundrum, weighing the risks of easing too soon against the need to support a labor market entering its own cold spell. In his press conference Wednesday after the rate-cutting announcement, Chair Jerome Powell acknowledged the difficulty of addressing two countervailing trends. We’ll know more at the next meeting in November when the Chair dons either a parka or festive Tommy Bahama shirt.
