Federal Reserve Cuts Prime Lending Rate in First Adjustment since December 2024 - Federal Reserve reduces interest rates for the first time since December 2024
The Federal Reserve, the central banking system of the United States, has made a significant move by cutting its key interest rate for the first time since Donald Trump's inauguration. The decision was made by the Federal Reserve's Monetary Policy Committee in Washington, aiming to find a compromise solution to the increased risks on the labor market while inflation is rising.
The rate cut was anticipated due to the weakening of the US labor market, as the latest US labor market figures have fallen short of expectations, and the estimate of job growth over the 12 months to March 2025 was revised down by a total of 911,000 jobs.
The Federal Funds Rate, the interest rate at which banks lend to each other overnight, has been reduced to a new range of 4.0 to 4.25 percent. This move makes loans cheaper for businesses and consumers, potentially boosting the economy and creating jobs.
However, the decision is not solely due to the pressure from the White House. While President Trump has repeatedly called for rate cuts and wants to boost the economy, making it easier for Americans to buy homes with a lower rate, it is unlikely to have played a significant role in the current decision.
The future independence of the Fed is being questioned due to Trump's influence. Stephen Miran, a Trump ally and a member of the Monetary Policy Committee, voted for a larger rate cut than the 0.25 percentage point, aligning with Trump's wishes. This has led some, like Democratic Senator Elizabeth Warren, to question Miran's independence, accusing him of being "Trump's puppet."
Trump's attempts to sway the Federal Reserve's monetary policy have been more assertive in 2025. He has initiated the removal of Federal Reserve Governor Lisa Cook, who is currently contesting the removal in a U.S. appeals court. Trump recently suffered a defeat in this matter.
Despite the appointment of Fed Governor Stephen Miran, supported by Trump, the Fed prioritized controlling inflation risks and maintaining economic stability over political pressure, resulting only in a modest 0.25 percentage point rate cut. This decision shows the Fed's commitment to its mandate, despite external pressures.
The rate cut reduces the attractiveness of the US dollar, strengthening the euro. More money in circulation can boost the economy and create jobs, but the Fed must balance this with the need to control inflation. The Fed's monetary policy committee acted cautiously in the face of rising inflation, demonstrating a careful and considered approach to managing the economy.
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