Federal Reserve lowers interest rates by a quarter of a percent
The U.S. Federal Reserve has lowered its benchmark interest rate by a quarter point, bringing the range to 4.00% to 4.25%. This move comes amidst a mixed economic picture and continued pressure from President Trump for stronger rate cuts.
President Trump has been vocal in his criticisms of the Federal Reserve, expressing dissatisfaction with what he sees as a too-cautious mortgage rate policy. However, none of the Fed governors appointed by President Trump voted for a quarter-point rate cut during the June 2022 meeting.
The decision to lower rates was not unanimous, with only Michelle Bowman and Christopher Waller, two of Trump's appointees, voting in favour. Stephen Moore, an ally of Trump, was the only member of the Open Market Committee to vote for a larger rate cut of half a percentage point.
The rate cut weighed on the dollar and boosted U.S. stock market today, as investors interpreted the move as a signal of a more accommodative monetary policy. The decision also followed a period of economic uncertainty, with consumer prices rising to an inflation rate of 2.9% in August, and only 22,000 new jobs outside the agriculture sector being added in the same month.
The Fed officials still anticipate an unemployment rate of 4.5%, but the Open Market Committee stated that the downside risks to employment have increased. A data revision revealed earlier weaknesses in the American job market, which may have contributed to the Fed's decision to lower stock market rates.
The inflationary effects of Trump's tariffs were limited, according to the Fed. The European Central Bank, meanwhile, set the reference rate at $1.1837, with DekaBank Chief Economist Ulrich Kater stating that the rate cut was macroeconomically justifiable and in line with expectations. KfW Chief Economist Dirk Schumacher sees the rate cut as a response to a significantly weaker U.S. labor market, not as a result of Trump's pressure.
The Fed continues to forecast an inflation rate of 3% for this year, and a 1.6% increase for 2025, despite the rate cut. The Fed also signaled two more moderate rate cuts by the end of the year, in an effort to strike a balance between ensuring stable prices and promoting full employment. U.S. President Donald Trump has urged Fed Chairman Jerome Powell for stronger rate cuts, but the Fed's decision suggests a more cautious approach.
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