Economy concerns over workforce: Federal Reserve cuts borrowing costs in the U.S.
The U.S. Federal Reserve has made a move to lower interest rates, with the new range set at 4.0 to 4.25 percent. This decision was reached after 11 out of 12 voting members voted for a rate cut of 0.25 percentage points.
The decision comes amidst ongoing power struggles between the White House and the Fed. President Trump has been pushing for aggressive interest rate cuts and has attempted to influence the Fed’s leadership by appointing allies like Stephen Miran, while also trying to remove opposing members such as Lisa Cook.
Despite the pressure from the White House, the Fed Chair Jerome Powell aims to maintain the Fed’s independence and stay in office until May 2026. Miran, the newly confirmed interim member, has promised to "preserve" the independence of the central bank.
The Fed's Board of Governors is currently attempting to find a compromise solution for the increased risks in the labor market amidst rising inflation. The U.S. labor market numbers have recently fallen short of expectations, with the total number of jobs created over the 12 months to March 2025 being revised down by 911,000. Young adults and minorities are currently facing particular challenges in finding work in the U.S. labor market.
The interest rate cut is expected to lead to further reductions by the end of the year, with up to two rate reductions possible. This move is aimed at making loans cheaper for businesses and consumers in the U.S., which can stimulate the economy and create jobs. Lower interest rates can also make homeownership more affordable for Americans and reduce the interest burden on government debt.
Trump has repeatedly called for interest rate cuts and labeled Fed Chair Powell a "dummy". However, the intense pressure from the White House may not have played a significant role in the current interest rate decision. Trump has initiated the dismissal of Fed Governor Lisa Cook, citing alleged irregularities in private mortgage lending. However, Trump recently suffered a defeat in a US appeals court regarding the dismissal of Fed Governor Lisa Cook.
The Fed is taking "risks to price stability" into account with a cut. The rate cut has strengthened the euro against the U.S. dollar, benefiting European vacationers in the U.S. Following the rate decision, the European Union’s common currency briefly rose above 1.19 U.S. dollars, reaching its highest level since June 2021.
Stephen Miran, the newly confirmed interim member, advocated for a larger rate cut. Trump aims to boost the economy, make homeownership more affordable for Americans, and reduce the interest burden on government debt through lower interest rates. Despite the political tension, the Fed's primary focus remains on maintaining a stable and prosperous economy.
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