Struggling economy: Federal Reserve lowers borrowing costs to stimulate growth
The U.S. Federal Reserve has made a significant move by lowering the interest rate to a range of 4.0 to 4.25 percent. This decision, which was supported by eleven out of twelve voting members, comes after the U.S. labor market showed signs of weakness and a revised employment growth figure for the twelve months up to March 2025 that fell short of expectations, totaling a decrease of 911,000 jobs.
The rate cut is expected to have a positive impact on European tourists traveling to the U.S., as the reduced attractiveness of the U.S. dollar will strengthen the euro. Before the rate decision, the European Union's common currency had risen to around 1.18 U.S. dollars.
President Donald Trump has been vocal about his desire for interest rate cuts, labeling Fed Chair Powell a "fool" on multiple occasions. However, it is unlikely that the intense pressure from the White House played a significant role in the current rate decision.
In a bid to align with Trump's wishes, Donald Trump appointed Stephen Miran, a recent interim member of the Fed board and Trump's ally, to the Federal Reserve Board of Governors. Miran, who has promised to "preserve" the independence of the central bank, even voted for a larger cut. However, Democratic Senator Elizabeth Warren has questioned Miran's independence and accused him of being "Trump's puppet."
The slowdown in employment growth in the U.S. has pushed inflation risks associated with U.S. tariffs into the background. The Federal Reserve Board, in its cautious approach, is mindful of rising inflation.
The lowered interest rate now makes loans cheaper for businesses and consumers in the U.S., aiming to boost the economy, ease home purchases for Americans, and reduce the debt burden on the government.
However, Trump's attempt to influence the Fed's monetary policy through personnel disputes, such as the removal of Fed Governor Lisa Cook, has been met with resistance. Recently, Trump suffered a defeat in a U.S. appeals court regarding the removal of Fed Governor Cook.
In summary, the U.S. Federal Reserve's decision to lower interest rates is a response to the weakening U.S. labor market and is expected to have a positive impact on the European economy. Despite President Trump's pressure, the Fed maintains its independence and cautious approach to inflation risks.
