2024-11-07 19:48:00
US economy
The Fed cuts key interest rates by 0.25 percentage points
The US Federal Reserve is cutting its key interest rate for the second time in a row in view of declining inflation.
Published: November 7, 2024, 8:48 p.m
Fed Chairman Jerome Powell is making Donald Trump happy with his renewed interest rate cut. SHAWN THEW
Foto: Shawn Thew (Keystone)
The US Federal Reserve is cutting its key interest rate for the second time in a row in view of declining inflation. The Fed announced on Thursday evening that the key interest rate will now be reduced by 0.25 percentage points to a corridor of 4.5 to 4.75 percent.
Commercial banks can borrow central bank money at this rate. In September, the central bank of the world’s largest economy reduced its key interest rate for the first time since the outbreak of the corona pandemic. It remains unclear what impact the return of Republican Donald Trump will have on the Fed’s interest rate policy.
Inflation is falling in the USA
The Fed’s classic job is to keep inflation under control. The inflation rate fell further in September – but less than expected. Consumer prices rose by 2.4 percent compared to the same month last year. The inflation rate is the lowest since February 2021. In August it was 2.5 percent. Inflation is making progress towards the long-term target of 2 percent, the monetary authorities said.
In addition, the latest indicators show that the economy continues to grow solidly. The labor market has cooled slightly. Unemployment has increased slightly, but is still low, it said. The interest rate decision was made unanimously.
The Fed had already signaled further interest rate cuts this year in September. The Fed expects an average key interest rate of 3.4 percent for the coming year. The central bank will only publish new forecasts in December – and will then also take Trump’s new presidency into account.
Trump wants low interest rates
The Fed works independently of the US government. During his time in the White House, the Republican Trump repeatedly clashed with the Fed, suggested interest rate cuts and heavily criticized Fed Chairman Jerome Powell. There are fears that he will try to interfere in monetary policy decisions again after he returns to the White House in January.
In addition, Trump is planning high tariffs and tax cuts. It is expected that this policy will cause inflation to rise again. It remains unclear whether, given these prospects, the Fed will continue to significantly lower interest rates – or whether it will continue to pursue a policy of high interest rates for a longer period of time.
High interest rates slow demand. Private individuals and businesses spend more on loans – or they borrow less money. Growth is slowing, companies cannot pass on higher prices indefinitely – and ideally the inflation rate is falling.
Powell will remain in office until 2026
In his second term, Trump is likely to at least try to pressure the Fed to cut interest rates. The staff at the central bank is also likely to change in the long term. During his time as US President, Trump nominated Powell for his first term as Fed chief, but then criticized him for raising interest rates.
He recently said that he would not fire Powell. But Powell’s term ends in 2026 – then Trump can nominate a new Fed chief. He had already stated that he would not nominate Powell again.
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D and its chairman, Jerome Powell, to adopt policies that favor lower interest rates. Powell is expected to remain in his position until 2026, which means he will continue to navigate the complexities of economic decisions amid political pressures.
During his first term, Trump was vocal in his criticism of Powell and the Fed’s interest rate decisions, often expressing his desire for lower rates to stimulate growth. As he approaches a potential return to power, it raises questions about the future trajectory of U.S. monetary policy and its implications for inflation and economic growth.
The balance between controlling inflation and supporting economic growth will be crucial in the coming months, especially as Trump’s potential policies could affect inflation rates. The Fed will have to carefully consider these projections as it formulates its approach, particularly with new forecasts expected to be released in December.
while the Fed is in a position to manage interest rates independently, the interplay between fiscal policies that may arise from Trump’s administration and the Fed’s monetary strategies will be closely scrutinized in the near future. How this dynamic unfolds will be significant for the U.S. economy as it strives to maintain stability amid shifting political landscapes and economic indicators.