Economic concern over employment conditions: Federal Reserve reduces interest rates in the United States
The US Federal Reserve has announced a key interest rate cut, lowering it to a range of 4.0 to 4.25 percent - the first such move in nearly 1.5 years. The decision comes amid intense pressure from the White House and ongoing controversies surrounding the Fed's personnel.
Despite accusations, Stephen Miran, a recent addition to the Fed board, voted for a larger mortgage rates cut than the one implemented. However, his position has been met with skepticism, with Democratic Senator Elizabeth Warren labelling him as 'Trump's puppet.' Trump's attempts to influence the Fed's monetary policy through personnel disputes, most recently initiating the dismissal of Fed Governor Lisa Cook, have been met with resistance. Cook is fighting back legally against her dismissal, having recently won a legal victory in a US appeals court.
The rate cut is intended to boost the economy, making homeownership more affordable for Americans and reducing the interest burden on the national debt. However, the move also carries risks, with Michael Heise, chief economist of HQ Trust, suggesting that the Fed is taking risks for price stability.
The employment growth in the 12 months up to March 2025 was revised down by a total of 911,000 jobs. Despite this, Fed Chairman Powell has highlighted that young adults and minorities are currently facing particular challenges in finding work.
Analysts anticipated this move due to the weakening of the US labor market. The intense pressure from the White House may not have played a significant role in the current interest rate decision. Thomas Gitzel, chief economist at VP Bank, commented that it is expected that the key interest rate will be reduced by 25 basis points at each of the remaining two meetings this year.
The Fed hinted at further rate cuts by the end of 2023, with up to two rate cuts of 25 basis points each possible. The rate cut reduces the attractiveness of the US dollar and strengthens the euro. After the rate decision, the European Union’s common currency briefly rose above 1.19 US dollars, reaching its highest level since June 2021.
Despite the controversies and pressure, Miran has promised to 'preserve' the independence of the central bank. The Fed maintains its independence, and the legal authority to remove the Fed Chair remains unclear.
Lower interest rates make loans cheaper for businesses and consumers, which could stimulate economic growth. However, the long-term implications of the current rate cuts and the ongoing personnel disputes remain to be seen. Trump has repeatedly pushed for interest rate cuts, labeling Fed Chair Powell a 'fool' on multiple occasions. The future of the Fed's monetary policy remains uncertain as these controversies continue to unfold.
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