US Fed's Rate Standoff with Trump: Central Bank Maintains Rates Amid Trump's Demands for a Cut
Applying Pressure on Trump: The Federal Reserve Steers Clear of Rate Adjustments - Setting a course for potential collision with Trump, the Fed remains resistant to adjusting interest rates.
The US Federal Reserve (Fed) is buckling down amid mounting pressure from President Donald Trump as it keeps the interest rate at a high level, stirring up another confrontation with the POTUS. The central bank's rate remains stationed within the range of 4.25% to 4.5% – a decision announced in the nation's capital, Washington.
With this move, the Fed aims to provide loans to businesses at this rate and it's a step that was predicted by analysts. However, in recent weeks, Trump has been persistent in his calls for the Fed to bring down interest rates. The Fed has justified its decision by highlighting the increased risk of higher inflation. This statement may also be a nod to Trump's aggressive trade policy.
Trump has made it clear that he believes his understanding of interest rates surpasses that of Jerome Powell, the Fed Chairman. It's worth mentioning that the Fed operates independently of the US government. Despite Powell's past indications that a quick rate cut isn't likely, Trump has criticized him repeatedly.
The trade policies instituted by Trump have initiated high tariffs on goods imported from various countries. This uncertainty about the consequences of his aggressive approach is one of the key drivers of inflation. Although the US has seen a significant decline in inflation rates recently, consumer prices only increased by 2.4% year-on-year in March, down from 2.8% in February. Yet, it's uncertain if this trend will persist as March was the month prior to Trump's comprehensive tariff package, which imposed rolled-over tariffs on goods from globally.
The Fed's mission is to tame inflation, targeting a goal of 2% annually. High interest rates serve as a barrier against rapidly rising consumer prices, since costly loans can dampen demand. Ideally, this discourages companies from increasing the prices of their goods and services. However, it's also worth noting that high interest rates have a potential to slow down the economy by encouraging savings, which might negatively affect growth.
Back in September 2022, the Fed took the first step to raise the interest rate with a significant cut of 0.5 percentage points in response to the major inflation wave. This was followed by two smaller increases of 0.25 points each in November and December. Ever since, the Fed has left the central bank's key rate or the prime rate unaltered, despite the ongoing bout of inflation. The Fed estimates that the prime rate will average 3.9% in 2025, signaling two more rate hikes this year.
However, this stance puts the Fed on a potential collision course with Trump, who advocates for dramatic cuts in interest rates. His aim is to bolster the stock markets, decrease government financing expenses through debt, and stimulate economic growth. Lately, Trump experienced a setback on the economic domain as the US economy unexpectedly contracted in the first quarter of the year, suffering a slowdown in growth despite expectations for a gradual deceleration.
It's important to note that experts believe that Trump's trade policy will have a detrimental impact on the economy in the upcoming months and cause prices to soar. Trump downplays such concerns regarding high tariffs.
In short, the Fed is being measured in its approach to altering interest rates under the current economic climate, demonstrating its commitment to maintaining control over inflation while continuously assessing the broader implications of tariffs and other external factors.
- President Donald Trump has been advocating for interest rate cuts, contrary to the stance of the Federal Reserve (Fed), which is maintaining rates amidst Trump's demands.
- The Fed, led by Chairman Jerome Powell, is on a collision course with the Republican President, as higher interest rates are expected to average 3.9% by 2025.
- The Fed's decision to keep rates high is aimed at taming inflation, despite Trump's insistence on lower rates to stimulate economic growth and bolster the stock markets.
- The collision course between the Fed and the President is intensified by Trump's aggressive trade policy, which has led to increased inflation and uncertainty in business, finance, politics, and general-news.
- Transported back to September 2022, the Fed initiated a series of interest rate hikes in response to inflation, signifying the challenge of balancing economic recovery with inflation control amidst Trump's advocacy for lower rates.
