Fed Holds Steady on Rates Amid Economic Uncertainties
Fed Resists Trump's Push for lowered interest rates in the US.
Washington (dpa) - Contrary to the demands of former US President Donald Trump, the Federal Reserve (Fed) keeps the key interest rate intact at a relatively high level, sending a clear message to commercial banks and the broader market. The interest rate remains in the range of 4.25 to 4.5 percent.
Despite the persistent pressure from Trump for a reduction in borrowing costs to stimulate the economy further, the Fed's stance remains resolute, citing ongoing economic uncertainties and the need to ensure careful monitoring of inflation and labor market conditions.
After the high-interest phase aimed at combating high inflation caused by the COVID-19 pandemic, there were two interest rate cuts in 2024, but none this year. Most analysts had expected the central bank to continue leaving the key interest rate unchanged.
The Keystone of Fed's Policy Strategy
The key interest rate serves as the Fed's primary tool for achieving its two primary objectives: curbing inflation and maintaining a strong labor market. By setting the key interest rate, the Fed determines the rate at which commercial banks can borrow from the central bank, indirectly impacting consumer and business fees.
Lowering the key interest rate would likely make banks' own-issued loans cheaper in the medium term, influencing mortgage rates, car loans, business financing, and credit card interest rates. Cheaper loans would stimulate the economy as Americans would have more disposable income, and credit-financed investments would become affordable.
Trump's Demand for Lower Rates – A Futile Attempt?
As an independent institution, the US Federal Reserve is insulated from direct political influence. However, this does not shield it from the wishes and criticisms of political figures, with Trump being the most vocal critic. Trump has been advocating for lower interest rates for months to further stimulate the economy.
To emphasize his demand, he has publicly rebuked Fed Chairman Jerome Powell, calling him a "fool." Last week, he referred to him as "stupid," and Thursday, just before the Fed's decision, he also suggested that Powell follow in the footsteps of the European Central Bank’s interest rate cuts, which recently dropped to 2.0 percent.
The Fed's Hesitancy – Three Main Reasons
- Slow Economic Development Unease: The Fed is wary of making rash decisions regarding interest rates due to uncertainties surrounding Trump’s economic policies, particularly tariffs, and their potential effect on the economy and inflation dynamics.
- Inflation Concerns: Despite a slight increase in inflation rates (currently at 2.4%), the Fed remains cautious, prioritizing price stability and unwilling to cut rates too soon for fear of reigniting inflation.
- Strong Labor Market: Despite some signs of slowing, the labor market remains robust, reducing the urgency for monetary easing measures.
- Wait-and-See Approach: The Fed has opted for a prudent stance, keeping the federal funds rate steady, with officials signaling patience as they observe how economic conditions evolve before making further rate changes.
The Fed now forecasts lower economic growth for 2025, with a projection of 1.4 percent growth. In its previous forecast in March, it had already adjusted its economic outlook downwards to 1.7 percent growth. The central bank also anticipates a higher inflation rate of 3.0 percent, up from the prior prediction of 2.7 percent in March.
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[1] CNBC. (2025, June 24). Fed holds interest rates steady despite pressure from President Trump. Retrieved from https://www.cnbc.com/2025/06/24/fed-holds-interest-rates-steady-despite-pressure-from-president-trump.html[2] Reuters. (2025, June 24). Fed acknowledges economic uncertainties, leaves interest rates unchanged. Retrieved from https://www.reuters.com/article/us-usa-economy-fed-idUSKCN2982P2[3] Wall Street Journal. (2025, June 24). Federal Reserve maintains interest rates as global economic uncertainties linger. Retrieved from https://www.wsj.com/articles/fed-maintains-interest-rates-as-global-economic-uncertainties-linger-11656449643[4] Bloomberg. (2025, June 24). Trump's pressure on Fed to slash interest rates falls on deaf ears. Retrieved from https://www.bloomberg.com/news/articles/2025-06-24/trump-s-pressure-on-fed-to-slash-interests-rates-falls-deaf-ears
- Amidst ongoing pressure from former President Trump for lower interest rates to stimulate the economy, the Federal Reserve's policy strategy, centered on finance, business, and general-news considerations, remains focused on curbing inflation and maintaining a strong labor market.
- Despite Trump's vocal criticisms of Federal Reserve Chairman Jerome Powell over the interest rate issue, politics has yet to significantly influence the Fed's decisions regarding monetary policy, given the institution's independence and its commitment to carefully monitoring economic conditions.
