US Federal Reserve
Fed cuts interest rates for the third time in a row
At its last meeting this year, the Fed decides to make a small interest rate hike. The roadmap for next year is also likely to be shaped by Trump’s economic agenda.
The US Federal Reserve is lowering its key interest rate for the third time in a row despite rising inflation. The Fed announced that the key interest rate would now be reduced by 0.25 percentage points to a corridor of 4.25 to 4.5 percent. Commercial banks can borrow central bank money at this rate. However, the central bank of the world’s largest economy is predicting fewer interest rate hikes for the coming year than previously forecast.
The Fed’s decision-makers expect an average key interest rate of 3.9 percent for 2025 (September: 3.4 percent). The prediction comes as little surprise. The resilient US economy and the strong labor market give the central bank the necessary leeway to stick to its high interest rate policy for longer. In addition, the inflation rate has recently increased slightly again. Another uncertainty factor is Donald Trump – the Republican will move back into the White House in January.
Fed must keep inflation under control
For the coming year, the central bankers are now expecting an average inflation rate of 2.5 percent – which is higher than previously assumed. In September the forecast for 2025 was 2.1 percent. Core inflation, i.e. without taking food and energy prices into account, is also expected to be 2.5 percent next year (September: 2.2 percent). The central bankers pay particular attention to this value in their analysis. According to experts, it reflects the general price trend better than the overall rate because components that are susceptible to fluctuation are excluded.
The Fed’s classic job is to keep inflation under control. It aims for an inflation rate of two percent in the medium term. For the Fed, the fight against high consumer prices is a balancing act. If interest rates are too high, there is a risk of a recession. If interest rates are lowered too early, the inflation rate could rise again. In the summer of 2022 it was more than nine percent. In response to high consumer prices, the Fed raised interest rates at a record-breaking pace.
Trump’s uncertainty factor
The fact that the Fed is now putting the brakes on further interest rate cuts is probably also due to Trump’s economic plans. He has announced the introduction of far-reaching tariffs. According to economists, this could lead to higher inflation. Trump repeatedly rejects the experts’ predictions. Even if the Fed remains tight-lipped on the issue, it’s hard to imagine that the prospect of high import tariffs won’t play a role in the Fed’s forecasts.
The central bank has now also published its new economic forecast for the USA. The gross domestic product (GDP) of the world’s largest economy will therefore grow by 2.1 percent in 2025 (September: 2 percent). The Fed is forecasting growth of 2.5 percent this year (September: 2 percent).
dpa
Source: Stern
