Will the Federal Reserve reduce interest rates today?
The US Federal Reserve is set to make an interest rate decision today, with most market observers anticipating a rate cut. Recent economic data suggests a weakening labor market, which has led to the widely expected action of a cut in the key rate.
In a surprising turn of events, Stephen Moore, one of Trump's trusted associates, temporarily joined the committee that decides on the key rate as part of the central bank council. However, it is suspected that Moore, who was rejected during Trump's last term for a Board position, would vote for cuts in future rate meetings, in line with Trump's wishes.
The current key rate, ranging from 4.25 to 4.5 percent, can be attractive for consumers and businesses seeking better loan terms. A lower rate can boost the economy and create jobs, but the employment growth forecast for the 12 months ending in March 2025 was revised down by a total of 911,000 jobs.
The Fed Chair, Jerome Powell, has advocated a more restrictive course to control inflation. There is also a possibility that the Fed will not cut the key rate due to concerns about stronger inflation. The vice-chair is fighting this legally, and Trump suffered a defeat in a US appeals court.
Trump has been demanding rate cuts for months, but the central bank did not comply. Dirk Schumacher of the promotional bank KfW says a rate cut is "a done deal." Berenberg economist Felix Schmidt expects a rate cut at the end of October. The IMF communicated optimism about a rate cut.
One of the main problems of the US economy is that companies are increasingly uncertain about their investment prospects due to President Donald Trump's trade policies. This uncertainty has likely contributed to the recent underperformance of the US labor market, with numbers falling short of expectations.
Trump publicly considered firing Powell and initiated proceedings to remove Fed board member Lisa Cook due to alleged irregularities in private real estate loans. These actions have raised concerns about political interference in the Fed's decision-making process.
In conclusion, the Fed's interest rate decision today will be closely watched by markets and economists alike. The expected rate cut could provide a much-needed boost to the US economy, but concerns about inflation and political interference remain.
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