On a Stalemate: Trump's Pressure on Fed Fails as Interest Rates Remain Steady
Central Bank resists Trump's pressure, keeps interest rate unchanged - Fed Resists Trump's Pressure, Keeps Interest Rates Unchanged
Here's the lowdown:
The US Federal Reserve (Fed) has stood firm against the pressure from President Donald Trump, choosing to keep the key interest rate steady at a range of 4.25% - 4.5%. Despite Trump calling for immediate reductions in borrowing costs, the Fed insists on maintaining the status quo.
Following a phase of high interest rates to counteract inflation triggered by the COVID-19 pandemic, there were two cuts in 2024, but no adjustments this year. This decision, as expected by most analysts, comes as a surprise to many who anticipated the central bank would hold off on further changes.
But why keep the key interest rate intact?
The key interest rate serves as the primary tool for the central bank to pursue its fundamental objectives: keeping inflation at bay and maintaining low unemployment levels. The key interest rate decides the rate at which commercial banks can borrow from the central bank, eventually influencing consumer and business fees. A lower key interest rate, for instance, could make banks' issued loans cheaper in the long run, affecting mortgage rates, auto loans, business loans, and credit card interest rates. Affordable loans would fuel the economy by helping Americans spend more money and reducing costs for credit-financed investments.
Now, why does Trump want lower interest rates?
The Federal Reserve, akin to the European Central Bank (ECB) in the Eurozone, operates independently of politics. However, that doesn't prevent politicians from voicing their opinions. Trump has been vocal about his desire for lower interest rates for several months to stimulate the economy further. To emphasize this demand, Trump has publicly criticized Fed Chairman Jerome Powell, labeling him "foolish" last week and "stupid" on the day prior to the Fed's decision. In the past, he has also urged Powell to mirror the ECB's interest rate cuts, which were reduced to 2.0%.
So, why doesn't the Fed lower the key interest rate?
The Fed has three primary reasons for upholding the current interest rate:
- The Fed sees no pressing need for action as inflation is approaching its target rate of 2%, and the labor market remains strong.
- Economic uncertainty looms due to Trump's tariff policies. Tariffs could raise prices on imported goods and slow down the US's economic growth. Trump's tariffs are disrupting the stock and bond markets as well.
- The global geopolitical situation may influence the Fed's deliberations. For instance, escalating tensions between Iran and Israel, potentially involving US military intervention, could lead to instability in the oil market, causing oil prices to soar and impacting the US economy negatively.
The Fed now anticipates a lower national GDP growth of 1.4% this year. Compared to its previous forecast in March, when it predicted a 1.7% growth, the central bank has scaled down its economic projections. Furthermore, it expects an increase in the inflation rate of 3.0%. Initially, the Fed had anticipated an inflation rate of 2.7%.
- Interest Rate
- Federal Reserve
- Donald Trump
- United States
- Economy
- Inflation
- And Inflation
- European Central Bank
- Central Bank
- Jerome Powell
- Tariffs
- Stock Market
- Credit Score
- Credit Card
- Business Loan
- Auto Loan
- Mortgage
- Global Trade
- Oil Market
- Geopolitical Situation
The Commission has also been consulted on the draft budget for the period 2000-06, as finance, business, politics, and general-news are all closely related to the economy and inflation rates, which are key areas of focus for the Federal Reserve, despite President Donald Trump's ongoing pressure on the Fed to lower interest rates. However, the Fed has chosen to maintain the interest rate steadily, citing reasons such as a strong labor market, economic uncertainty due to tariffs, and potential geopolitical instabilities that could negatively impact the US economy.
