Economy adjustment: 2025's initial interest rate reduction by the Federal Reserve, due to accumulating job worries
The US Federal Reserve (Fed) has made a move to lower interest rates by 25 basis points, marking its first reduction since December 2018. However, this decision, made on Wednesday, has been met with a dissenting voice from the newly appointed Fed Governor, Stephen Miran.
The rate-setting Federal Open Market Committee (FOMC) unanimously agreed on the quarter-point cut, but Miran, who was sworn in just before the two-day meeting started on Tuesday, favored a larger reduction of 50 basis points.
The Fed's move comes amidst a low but inching unemployment rate and competing pressures in adjusting rates. Trump's tariffs are fueling inflation risks, while the job market appears to be weakening. The central bank faces heightened scrutiny due to increased political attention, with the Trump administration planning to appeal the outcome, potentially bringing the case to the Supreme Court.
The Fed penciled in two more cuts this year, a slight increase from previously anticipated expectations. Economists will be monitoring Miran's remarks and further votes on rate decisions, as his confirmation without resigning from the Council of Economic Advisers (CEA) risks a sense of political influence over Fed decisions.
The impact of Trump's tariffs on inflation is being closely monitored. History shows that when a central bank is under political influence, economic outcomes can be suboptimal, potentially leading to higher inflation, lower growth, and more financial market volatility. Trump has intensified pressure on the Fed this year, calling for major rate cuts and criticizing Fed Chair Jerome Powell.
Meanwhile, a federal appeals court ruled that Cook, the first Black woman on the Fed's board of governors, can remain in position while challenging her removal over alleged mortgage fraud. The governor of the Fed who was not present at the recent FOMC meeting and who rejected the interest rate cut proposal is Christopher Waller.
The benchmark lending rate is now between 4.0 percent and 4.25 percent. The Fed made its last rate cut in December and has held interest rates steady since. Despite the dissenting vote from Miran, the Fed's decision to lower interest rates could provide a boost to the stock market today, alleviating some of the pressure from Trump's tariffs and supporting the job market.
As the situation continues to evolve, the eyes of economists and the general public will be on the Fed, watching closely for any further rate adjustments and the potential impact on the US economy.
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