The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) fell by 0.8 points, from 32.5 to 31.7, after the Federal Reserve cut interest rates by a quarter of a percentage point.
Two of the ESI's five indicators decreased during this period. Confidence in the overall U.S. economy decreased the most, declining 3.8 points to 30.6.
—Confidence in finding a new job decreased 3.7 points to 25.6.
—Confidence in making a major purchase increased 0.3 points to 25.1.
—Confidence in personal finances increased 1.4 points to 51.9.
—Confidence in buying a new home increased 1.8 points to 25.0.
The Federal Reserve cut interest rates by a quarter of a percentage point at the September Federal Open Markets Committee (FOMC) meeting, lowering the new target range for the federal funds rate to 4 to 4.25 percent. The FOMC underscored that the final decision to cut rates came down to the slowing employment situation, stating, "The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen." Eleven of the 12 voting members of the FOMC voted for the quarter-point cut, with newly appointed Fed governor Stephen Miran dissenting in favor of a half-point cut.
In its Summary of Economic Projections, the FOMC signaled that additional interest rate cuts are still on the table for 2025, with nine officials anticipating two cuts by the end of the year. However, substantial divisions among FOMC participants were also apparent, as one Fed official indicated that rates will decline by 1.25 percent this year while another predicted interest rates would be hiked back up 0.25 percent by the end of 2025.
The Labor Department released the August Consumer Price Index (CPI) showing a 0.4 percent increase in overall inflation with a 0.3 percent rise in core inflation. Year-over-year, the CPI increased 2.9 percent, with core inflation rising 3.1 percent annually. These increases were primarily driven by rising shelter costs, which rose 0.4 percent in August. Prices for food (+0.5 percent), energy (+0.7 percent), and gasoline (+1.9 percent) also increased during the month. The data highlighted the difficulties the Fed faces in pursuing its dual mandate.
Survey data from Freddie Mac showed that the average 30-year mortgage rate continues to decline, falling to 6.26 percent during the week ending September 18. This marks the lowest average rate since early October 2024. This decline has provided much-needed relief to both homebuyers and homeowners, reflected in recent data from Mortgage Bankers Association showing mortgage applications jumped nearly 30 percent in the week ending September 12, with refinances surging 58 percent.
The ESI's three-day moving average began this two-week stretch at 31.6 on September 10. It then decreased to its low of 30.2 on September 12. It then began to oscillate, rising and falling before increasing again to hit a 3-day high of 32.5 on September 17 through 19. It then fell again to 31.7 on September 23 to close out the session.
The next release of the ESI will be on Wednesday, October 8, 2025.
