U.S. Fed Refuses to Bow to Trump Pressure on Interest Rates
In contradiction to Trump's requests, the US Federal Reserve is choosing not to reduce interest rates.
Washington (dpa) - The U.S. Federal Reserve (Fed) decided to keep interest rates unchanged at ahefty 4.25 to 4.5 percent, contradicting President Trump's demands for a cut. Trump's pressure for lower rates to stimulate the economy clashes with the Fed's focus on maintaining economic stability and controlling inflation.
The Fed's Stance on Interest Rates
High interest rates are the Fed's primary tool to achieve its main objectives: managing inflation and promoting full employment. The Fed employs this interest rate as the benchmark for commercial banks to borrow money from the central bank. Ultimately, this rate affects mortgage rates, car loans, business financing, and even credit card interest rates.
While the Fed has decreased rates in the past to counteract high inflation, it hasn't done so this year. Many analysts anticipated that the Fed would keep the key rate steady.
Trump's Agenda and the Fed's Independence
The Fed operates independently, free from political influence, but politicians can still voice opinions about interest rate decisions. President Trump has been demanding lower rates for months to further stimulate the economy. Despite this, the Fed remains independent—its decisions revolve around economic data and forecasts instead of political pressures.
Donald Trump has taken his demands public, even attacking Fed Chairman Jerome Powell publicly on several occasions. Despite the President's strong stance, the Fed maintains its autonomy and doesn't want to ease up on rates.
The Fed's Rationale
The Fed sees little need to cut rates due to several factors:
- The inflation rate is close to its target of 2%, and the labor market remains solid.
- Economic uncertainty remains high, impacted by Trump's aggressive tariffs, which could increase the prices of imported goods and slow growth.
- Geopolitical instability, such as the ongoing conflict between Iran and Israel, also poses a risk to the U.S. economy, with any potential escalation leading to oil price increases and economic slowdown.
The Economic Outlook
The Fed now forecasts a slower economic growth of 1.4% for this year—down from the previous forecast of 1.7%. The central bank also predicts a higher inflation rate of 3.0%.
While some rate cuts are anticipated later in the year, the current economic conditions call for maintaining rates to ensure stable growth while keeping inflation in check.
Sources:
- Federal Reserve's Policy Rate and Powells Testimony
- The Economic Outlook and Inflation
- President Trump Campaigns on Lower Rates
- Trump Pressuring the Fed
- The Fed's Independence and Trump's Criticism
- In the context of the ongoing dispute, President Trump's demands for lower interest rates as a means to stimulate the economy contradict the Federal Reserve's focus on maintaining economic stability, controlling inflation, and managing business financing, general-news, politics, and finance.
- The Federal Reserve's primary tool for achieving its main objectives - managing inflation and promoting full employment - is high interest rates. These rates not only affect mortgage rates, car loans, business financing, and credit card interest rates but also extend to the broader category of general-news and business, thus impacting the economy at large, politics, and finance.
