Will the Federal Reserve lower its interest rates today?
The United States Federal Reserve is set to make an interest rate decision today, with most market observers predicting a rate cut of at least 0.25 percentage points. This decision comes amidst strengthening inflation, fuelled in part by US tariffs on imports.
The potential for lower interest rates could stimulate the economy by making loans more attractive to consumers and businesses. However, there are concerns that such a move could further exacerbate inflationary pressures. Fed Chair Jerome Powell has advocated for a more restrictive course to control inflation.
The Fed has kept the interest rate in the range of 4.25 to 4.5 percent since December 2024. Recently, the labor market in the US has shown signs of weakness, with job growth revised down by a total of 911,000 jobs from December 2024 to March 2025.
President Donald Trump has been demanding rate cuts for months, but the Fed has not yet complied. Trump has exerted pressure on Powell and Fed board member Lisa Cook, and publicly considered firing Powell. However, Stephen Moore, one of Trump's allies, has temporarily joined the Fed board.
The International Monetary Fund (IMF) has expressed optimism about the Fed's ability to begin gradually lowering the appropriate range. IMF communications director, Julie Kozack, stated that the Fed can now start to gradually lower the corresponding range. Economist Dirk Schumacher of the promotional bank KfW believes a rate cut is "a done deal." Berenberg economist Felix Schmidt expects a rate cut at the end of October, but suggests it may occur before "persistent inflation pressure puts a stop to further rate cuts."
Businesses in the US are uncertain about their investment plans due to President Trump's trade policies. This uncertainty could potentially impact the economy, making it crucial for the Fed to make a decision that balances growth and inflation control.
At the end of the mid-month meeting of the Bundesbank's Governing Council (Bundesbankrat), the person who writes or signs decisions on interest rate cuts is typically the Bundesbank President, who reports and formalizes the monetary policy decisions.
As the Fed prepares to announce its decision, the world watches with bated breath, eager to see how the US economy will be shaped by this decision.
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