US central bank
At a collision course with Trump: Fed does not touch Leit zins
Trump is an advocate of a low interest rate policy. But the Fed does not want to lower the key interest rate. That should be annoyed by the US President. But the central bank has an eye on inflation and Trump’s tariffs.
The US Federal Reserve keeps the key interest rate stable at a high level and heads for a new confrontation with US President Donald Trump. The central bank interest remains with a range of 4.25 to 4.5 percent, as the Fed announced in Washington. Central bank money can be borrowed from this sentence. The step was expected by analysts. Trump had asked the FED several times in recent weeks to reduce interest rates. Among other things, the central bank justified its approach that the risk of higher inflation has increased – and should therefore also indicate aggressive customs policy on Trump’s.
Trump: I understand more of interest policy than Powell
The Republican had recently given up again and again especially against Fed boss Jerome Powell. He recently announced: “I think I understand much more of interest than him.” The Fed works independently of the US government. Powell made it clear in the past few weeks that a quick interest rate reduction was unlikely. The main reason for this is Trump’s aggressive customs policy.
Trump has imposed high tariffs on goods from different countries since taking office. The uncertainty about the possible consequences of the aggressive approach is one of the strongest winners. Inflation in the United States has recently weakened significantly. In March, US consumer prices rose only by 2.4 percent in the year. In February, the inflation rate was still 2.8 percent. How sustainable the development is has to be seen. Because March was the month before Trump’s comprehensive customs package with flat -rate punishment for goods from all over the world.
Fed wants to control inflation with high interest rates
The task of the Fed is to keep inflation in check. It strives for an inflation rate of 2 percent. High interest rates are an instrument for rapid rising consumer prices. Because expensive loans dampen the demand, which ideally means that companies no longer increase their prices as much. In addition, higher interest rates set more incentive to save. However, this can slow down the economy.
Last September, the Fed initiated the turnaround of interest rates by 0.5 percentage points after the large wave of inflation. In the two following months of November and December, two smaller steps of 0.25 points each followed. Since then, the central bank of the largest economy in the world no longer felt the key interest rate in view of the persistent inflation. The FED expects a guiding interest rate of 3.9 percent on average in 2025. This indicates two small interest steps this year.
Trump wants to boost economy with low interest rates
This makes the central bank on a collision course with Trump, which quickly wants to reduce interest. The Republican has always been advocate of a low interest rate policy. He hopes that the stock markets are supported, state financing via debts is cheaper and economic growth is boosted. Finally, Trump had to swallow a toad on the topic of the economy: the US economy lost a lot of driving and has surprisingly shrunk in the first quarter of the year.
Experts had not expected such a significant development, but had only assumed a clear slowdown in growth. Trump rated the development as an aftermath of the economic policy of his predecessor Joe Biden. However, experts assume that Trump’s customs policy will have a negative impact on the economy in the coming months and the prices will drive up. Trump does not want to know anything about it and regularly wipes concerns about the high tariffs.
dpa
Source: Stern
