Anticipated Major Event: Decision on Federal Interest Rates to Lower Tonight - Preview of Events to Come
U.S. Federal Reserve Announces Quarter-Point Interest Rate Cut
The U.S. Federal Reserve (Fed) is set to announce a quarter-point interest rate cut tonight at 8 PM CET, marking a policy reversal for the central bank that has refrained from rate cuts all year due to fears of inflation.
The decision comes under pressure from President Donald Trump, who has been pushing for a 'significant cut' this week. The rate cut is in response to the weakening U.S. labor market, with employment growth in the country having slowed significantly since the July meeting, leading to increasing concern about a potential slowdown.
Inflation remains above the Fed's target, but the impact of tariffs on final prices has been more moderate than originally feared. The Fed balances risks between labor market weaknesses and inflation pressures, aiming to manage a cautious monetary policy accordingly.
Fed governors anticipate further interest rate cuts in the coming months. Projections indicate typically two additional 0.25 percentage point reductions this year to support the economy. Some economists expect up to three cuts in 2025.
Differing views on employment and inflation are expected to prevent the Fed from promising an aggressive pace of rate cuts. Two Fed governors, Christopher Waller and Michelle Bowman, voted against keeping interest rates unchanged in July due to concerns about the labor market.
If the president succeeds in replacing Lisa Cook, whose term on the Fed board expires in 2038, this could influence the longer-term development of interest rates. Lisa Cook, a Fed governor, was allowed to continue working at the central bank while her legal battle against Trump's dismissal attempt continues.
Stephen Moore, nominated by President Trump for a vacant seat on the Fed, was sworn in just in time for the meeting. The new projections will show how much easing the officials expect for the next year and how they assess the development of inflation and unemployment.
The Fed Chair Jerome Powell will publish new economic projections alongside the rate decision. During his press conference, Powell is likely to be asked about the potential for dissent over the rate cut. If three representatives vote against the decision, this would be the first time since September 2019 that more than two representatives have voted against a rate decision.
The projections will be scrutinized for signs of the expected path of interest rates in the coming months. Economists surveyed by Bloomberg News mostly expect the Fed to project two rate cuts for this year. The new rate is expected to have a positive impact on the U.S. economy, providing some relief amidst concerns of a slowdown.
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