No Rate Cut Likely: US Fed Set to Disappoint Trump
Potential Disappointment for Trump as US Federal Reserve Could Resist President's Monetary Demands
US President Donald Trump is putting his foot down, demanding a decrease in interest rates. To make his case, he's even taken to personally attacking Fed Chair Jerome Powell. But don't count on the US Federal Reserve (Fed) listening to the President's requests anytime soon. Experts predict the central bank will stand its ground and maintain the current interest rate.
What Interest Rate Decision is Likely from the Fed?
The Fed decides on the interest rate's height today in its meeting. Right now, it sits at a range of 4.25% to 4.5% in the world's leading economy. Most analysts anticipate the central bank will leave the interest rate untouched, despite the ongoing criticism from the White House. After the high-interest phase to control inflation following the COVID-19 pandemic, there were two rate cuts in 2024, and none this year. The Fed's decision will be announced at 8:00 PM EST.
Why is the Interest Rate Important?
The interest rate is the Fed's primary weapon for pursuing its two main objectives: controlling inflation and maintaining low unemployment rates. The interest rate determines the rate at which commercial banks can borrow from the central bank, which subsequently impacts fees charged to consumers and businesses.
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If the Fed were to lower the interest rate, banks would likely offer cheaper loans, impacting mortgages, car loans, corporate financing, and sometimes credit card fees. Lower loan costs would stimulate the economy by allowing Americans to spend more and making credit-financed investments cheaper.
Why Does Trump Want Lower Interest Rates?
The Fed operates independently from politics; however, politics still has no direct influence on interest rate decisions. Despite this, politicians - with President Trump at the helm - cannot resist expressing their desires. For months, Trump has been urging lower interest rates to further boost the economy.
To emphasize his demand, he has repeatedly lambasted Fed Chair Jerome Powell. Last week, Trump called him a "fool." At times, he has even advised him to follow the European Central Bank's (ECB) interest rate cuts. The ECB has recently lowered the interest rate to 2%.
Why Doesn't the Fed Lower the Interest Rate?
Economic Reasons
There are currently three significant reasons for the Fed's hesitation to lower interest rates:
- Lack of Urgent Need: The Fed sees little reason for action as the inflation rate is near its target of 2%, and the labor market remains strong.
- Economic Uncertainties: The future economic outlook is uncertain due to uncertainties surrounding trade policies enacted by Trump, which could increase import costs, slowing growth in the US.
- Geopolitical Unrest: The geopolitical situation may also play a role in the Fed's considerations. If the conflict between Iran and Israel escalates, potentially with US military intervention, significant turmoil in the oil market could occur, slowing down the US economy.
New Forecasts
In addition to announcing its interest rate decision, the Fed will also release new forecasts for the economy, inflation, and expected future interest rate cuts. In its previous forecast in March, the Fed had lowered its economic growth expectation in the shadow of Trump's tariff announcements, while increasing the expected inflation rate.
Trump, Powell, and the Fed continue to be the main focus on economic discussions. Keep an eye on the Fed's rate announcement for further insights on the economic outlook.
The Commission, in light of the demand for lower interest rates from US President Donald Trump, may find itself considering the financial implications of a proposal for a directive on the protection of workers from the risks related to exposure to ionizing radiation. This proposal could potentially impact businesses and politics, as well as general news, given the ongoing interest rate debate.
Even with the ongoing criticism from the White House for maintaining the current interest rate, the Federal Reserve (Fed) continues to prioritize its primary goals of controlling inflation and maintaining low unemployment rates, thus the interest rate remains important. Despite Trump's persistent urgings for lower interest rates, the Fed's independence from politics and economic uncertainties dampen the likelihood of a rate cut in the near future.
