Despite rising inflation again, the US Federal Reserve is likely to cut interest rates again.
The Fed will make its decision on the further course of the Fed today at 8 p.m. German time monetary policy known. Analysts expect the Fed to cut interest rates for the third time in a row. A small interest rate hike of 0.25 percentage points is expected. This would put the key interest rate in a corridor of 4.25 to 4.5 percent. Commercial banks can borrow central bank money at this rate.
The Fed’s classic job is to keep inflation under control. In the USA, price increases increased again somewhat in November. Consumer prices rose by 2.7 percent compared to the same month last year. In the previous month the rate was 2.6 percent. The Fed is aiming for an inflation rate of two percent over the medium term. Fed Chairman Jerome Powell said after the central bank meeting in November that it was assumed that the inflation rate would settle at two percent. In the summer of 2022, the inflation rate was still more than nine percent.
Der Trump Factor
Analysts expect the Fed to step on the brakes on further interest rate cuts next year. This also has to do with Donald Trump’s return to the White House. According to economists, the Republican’s economic plans – such as the introduction of far-reaching tariffs – could lead to higher inflation. That could limit the Fed’s room for maneuver to cut interest rates.
High interest rates slow down demand because private individuals and businesses have to spend more on loans. Growth is slowing, companies cannot pass on higher prices indefinitely – and ideally the inflation rate is falling. The Fed has so far assumed an average key interest rate of 3.4 percent for the coming year. However, the Fed wants to publish new interest rate forecasts today. These are particularly eagerly awaited as they outline the roadmap for the coming year. The Fed will also present new economic forecasts – such as inflation and growth.
Not a good relationship between Powell and Trump
“In the short term, the election will have no impact on our policy decisions,” Fed Chairman Powell said in November, shortly after Trump’s victory in the presidential election. The Fed works independently of the US government. In his second term, Trump is likely to at least try to pressure the Fed to cut interest rates. During his time in the White House, the Republican Trump repeatedly clashed with the Fed, suggested interest rate cuts and heavily criticized Fed Chairman Powell.
During his time as US President, Trump nominated Powell for his first term as Fed chief, but then criticized him for raising interest rates. Powell’s term ends in 2026 – then Trump can nominate a new Fed chief. He had already stated that he would not nominate Powell again. But Powell has also made it clear that he does not want to vacate his seat before the end of his term in office.
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WASHINGTON (dpa-AFX)
Swiss
