U.S. Central Bank Lowers Interest Rates to Alleviate Concerns over Employment Market
The Federal Reserve has made a move to stimulate the economy, announcing a 0.25 percentage point interest rate cut. The decision was supported by 11 out of 12 voting members of the Fed. This move comes as young adults and minorities face particular difficulties in finding work, according to Federal Reserve Chair Jerome Powell.
The interest rate cut is expected to make loans cheaper for businesses and consumers in the USA. Thomas Gitzel, chief economist at VP Bank, expects a 25 basis point reduction at each of the remaining two meetings. Michael Heise, chief economist of HQ Trust, stated that the cut accepts risks for price stability.
The slowing employment growth has pushed inflation risks related to US tariffs into the background, according to Kfw economist Dirk Schumacher. The latest employment numbers in the USA have fallen short of expectations, adding to the Fed's concerns.
The Fed's Federal Open Market Committee is attempting to create jobs and stimulate the economy with the interest rate cut. However, the decision has sparked controversy, with Democratic Senator Elizabeth Warren accusing Stephen Miran, a temporary member of the Fed board and Trump's ally, of being "Trump's puppet" and questioning his independence.
Miran, who has promised to "preserve the independence of the central bank," advocated for a larger mortgage rate cut, aligning with Trump's wishes. This raises concerns about political influence on the Fed's decisions, a dynamic further shaped by legal battles, such as Lisa Cook's successful court defense against her removal.
Trump has repeatedly called for mortgage rate cuts, and has insulted Fed Chair Powell as a "fool." The President initiated the dismissal of Fed Governor Lisa Cook, citing alleged irregularities in private mortgage lending. However, Trump suffered a defeat in a US appeals court regarding the dismissal of Cook.
Powell stated that the Fed is committed to maintaining its independence, and the Fed Board is acting cautiously in light of rising inflation. The Federal Reserve has indicated up to two more mortgage rate cuts by the end of the year, aiming to support the economy as it faces challenges.
Stephen Miran has assured that he will preserve the independence of the central bank, adding a layer of complexity to the political dynamics at play. The mortgage rate cut has strengthened the euro, reaching its highest level since June 2021 at 1.19 US dollars. Only time will tell how these decisions will impact the economy and the Fed's credibility.
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