Labor market concerns prompted the Federal Reserve to reduce interest rates in the United States
The Federal Reserve has made a move to cut interest rates for the first time in nearly nine months, with up to two downward steps possible by the end of the year. In a closely-watched decision, 11 out of 12 voting members of the Federal Reserve voted for a cut of 0.25 percentage points, bringing the current mortgage rates range to 4.0 to 4.25 percent.
The decision comes amidst growing economic pressure and increasing political influence. President Trump has repeatedly called for interest rate cuts, labeling Fed Chair Jerome Powell a "fool." Trump's intense pressure from the White House is unlikely to have played a significant role in the current rate decision, but the President's influence is evident in the appointment of Stephen Miran, a recently confirmed interim member of the Fed board. Miran, who advocated for a larger cut, aligns with Trump's wishes.
Democratic Senator Elizabeth Warren has accused Miran of being "Trump's puppet" and questioned his independence. However, Miran has promised to "preserve" the independence of the central bank, and Powell has reiterated the Fed's commitment to maintaining its independence.
The slowing employment growth is connected to "changes in immigration," according to Powell. Young adults and minorities are currently facing particular challenges in finding work, he stated. This move by the Fed follows the weakening of the U.S. labor market, a fact that many analysts anticipated.
The rate cut is expected to boost the economy, make homeownership more affordable, and reduce the interest burden on the national debt. It is also benefiting European vacationers in the U.S., as it reduces the attractiveness of the U.S. dollar and strengthens the euro. After the rate decision, the euro briefly rose above 1.19 U.S. dollars, reaching its highest level since June 2021.
The Federal Reserve Board proceeded cautiously due to rising inflation concerns. Despite the rate cut, the Fed's indications suggest that another cut could occur by 2026. Thomas Gitzel, chief economist at VP Bank, commented that the interest rate is expected to be reduced by 25 basis points at each of the remaining two meetings this year.
As the political influence on the Fed continues to grow, it remains to be seen how this will impact future monetary policies. The next step between the US President and the Fed involves increasing political influence by the Trump administration, notably through the appointment of Stephen Miran to the Fed's Board. This shift suggests that the Fed may adopt more politically influenced monetary policies with further interest rate reductions expected by year-end.
