Why US Reduces interest rates

This is finally going on.

After several months of economic debate and strengthening US President Donald Trump’s attacks on Wednesday, the US Central Bank reduced interest rates.

The Federal Reserve has stated that it reduces the goal at its main lending rate by 0.25 percentage. This will put it in range from 4% to 4.25% – the lowest level from the end of 2022.

This step is expected – the first decline in the bank’s rate from last December – a number of additional cuts in the coming months will begin, which should help reduce borrowing costs.

But today’s step is a warning about the economy, which reflects the strengthening of consensus in the Fed, that the vacancies market requires increasing in the form of lower interest rates.

“Unemployment is still low, but we are seeing insufficient risks,” Jerome Powell’s Federal Reserve Chairman said at a press conference after the announcement.

This is compared to the July Fed Update, which called the job market as “solid”.

Cutting on Wednesday was supported by 11 of the 12 members of the Fed Commission. Stephen Miran, who is on a temporary vacation from his post, which is conducted by the Trump Economic Advisers Committee, voted for a greater 0.5 percentage point.

It is not surprising that the Fed, which sets the interest rate policy, regardless of the White House, is cut.

The inflation that broke through the post-pandemic economy and forced the bank to increase interest rates in 2022 significantly decreased.

In the UK, Europe, Canada and other places, the central banks have already responded to smaller rates, while the Fed’s own policies have stated for months that it is expected to reduce the cost of borrowing by at least half the percentage point this year.

At the last meeting of the Fed, two members of the council even supported the reduction.

They were overcome because other members remained concerned that Trump’s economic policy, including tax reducing, tariffs and mass detentions of migrant workers, could cause inflation again.

And it is true that the US has observed inflation above in recent months. Prices rose 2.9% over 12 months to August, the fastest pace from January and is still higher than 2% of the Fed target.

But in recent weeks, these problems have been eclipsed by the weakness in the labor market. The US reported a miserable increase in work in August and July, and in June – the first decline since 2020.

“It really comes down to what we have seen on the job market – the deterioration we have seen over the last few months,” said Sarah House, a senior economist at Wells Fargo, who expects the tariffs to fall by 0.75 percent by the end of the year.

“The Fed knows that when the labor market turns, it becomes very fast, so they want to make sure that they do not step on the economy, at the same time the labor market has already slowed down.”

At the press conference after Powell announced, he emphasized that the unemployment rate remains low, at 4.3%, while recognizing the unusual disagreement among the members what to do next.

Fed forecasts believe that this year the Central Bank may reduce interest rates for additional 0.5 percentage points.

But seven members do not see a further need for reduction, while one member – who, according to analysts is probably Miran – believes that the rate should reduce below 3%.

“This is a good economy – we have seen much more difficult times,” Powell said. “But in terms of politics, it is difficult to know what to do. There are no risks now.”

Moving on Wednesday is unlikely to satisfy the president who spent the months, exploring the fluctuations of the Fed to the reduction of rates, which, he said, should be low to 1%.

He called Powell’s social media a “real mannequin”, accusing him of curbing the economy, leaving interest rates too high for too long.

“Too late” should reduce interest rates and more than he meant. Housing will take off !!! “,” Trump wrote in a social media report on the eve of the meeting, citing Powell.

Trump’s pressure is not only rhetorical. He quickly moved to install Miran during the meeting this week after a short -term vacancy opened last month.

His administration also threatened Powell shooting and investigating and recorded in a legal battle for efforts to dismiss economist Lisa Cook, another member of the Council.

For critics, Trump is moving towards an attack on the Fed Independence, which is unprecedented in the last history.

Powell conducted most of the press conference, which pressed against whether he agreed.

Asked, for example, when he saw the fight for Cook as a threat to the bank’s independence, he replied: “I see it as a court case, I think it would be inappropriate to comment.”

But regardless of clumsiness in the air at the Fed meeting this week, analysts say they believe the Fed’s decision will come regardless of Trump.

“The president’s policy certainly causes economic activity that causes the Fed’s hand,” said Art Hogan, the B. Riley Wealth market strategist.

“I believe that the Fed president had a zero influence.”

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