"Trump's significant request met with Fed's resistance" or "The Fed dismisses Trump's huge petition"
The U.S. Federal Reserve has made a move to stimulate the economy, cutting interest rates for the first time this year. The interest rate has been reduced by a quarter point to the new range of 4.00 to 4.25 percent.
This decision comes amidst a challenging economic landscape. Decision-making for the Federal Reserve remains difficult, as sustained high price increases are expected in the coming months. The labor market in the U.S. is now in a significantly weaker state, with employment growth having slowed so much that inflation risks related to the increase in tariffs have been pushed into the background. As a result, the Fed's full employment goal is wavering.
The rate cut was not without controversy within the Open Market Committee. Economists anticipate the rate cut due to changes in forecasts for U.S. economic growth and the labor market since July. However, a larger 50 basis point step would have been the wrong signal given the still persistent inflation above two percent.
One member of the Federal Reserve committee, Stephen Miran, refused to support a small interest rate cut and instead demanded a larger cut. He was the only one who voted for a 0.5% reduction, while the other 11 members favored a smaller 0.25% cut.
The tightrope walk between high inflation and weak employment will continue. Monetary policy needs to act in advance due to its time-lagged effects to counteract a further cooling of the labor market. By early 2026, the policy rate is expected to fall to around 3.00 percent.
However, if political influence prevails, the policy rate may fall significantly lower, but the independence and credibility of the Fed would be seriously threatened. New inflation risks are looming on the horizon, and U.S. companies may increasingly pass on higher production costs due to tariffs, further driving up inflation.
The economy appears less robust, and employment growth, after data revisions, was only half of what was previously thought. If economic momentum weakens, there will be further steps down the rate ladder. The Fed's decision to cut interest rates is a clear indication of their efforts to support the economy and maintain a balance between inflation and employment.
Market participants had expected the policy rate to be cut by 25 basis points to a range of 4.00-4.25 percent. The U.S. Federal Reserve's decision to cut interest rates may provide some relief to businesses and consumers, but the ongoing challenges in the economy will require continued vigilance and careful policy-making from the Federal Reserve. The tightrope walk between high inflation and weak employment will continue to be a key challenge for the Fed in the coming months.
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