Concerns over employment sector: U.S Federal Reserve cuts down interest rates
The US Federal Reserve has made a significant move in monetary policy, lowering its key interest rate to a range of 4.0 to 4.25 percent. This decision comes amidst growing political pressure from President Trump, who has been vocal about his desire for lower rates.
The rate cut, while intended to make loans cheaper for businesses and consumers, potentially boosting the economy and creating jobs, has raised concerns about price stability. Michael Heise, chief economist of HQ Trust, has expressed his apprehension, stating that the rate cut entails risks to price stability.
The Federal Open Market Committee, in making this decision, has proceeded cautiously given the rising inflation. However, the risks associated with US tariffs and inflation have been pushed into the background due to the slowing employment growth.
The latest US labor market numbers have fallen short of expectations, with the total number of jobs created in the 12 months up to March 2025 revised down by 911,000. This slowing employment growth is connected to "changes in immigration," according to Fed Chair Powell.
Despite this, there are fewer layoffs, but the overall job finding rate is very low. Young adults and minorities are currently facing particular challenges in finding work, according to Fed Chair Powell.
President Trump's influence on the Fed's monetary policy has been evident, with politically motivated appointments in the Fed's monetary policy committee and a potential shift towards policies favoring economic stimulus but risking higher inflation and currency devaluation. Trump has repeatedly called for interest rate cuts and labeled Fed Chair Powell a "fool" on multiple occasions.
This political influence has been further highlighted by Trump's attempts to dismiss Fed Governor Lisa Cook and the appointment of Stephen Miran, a temporary member of the Fed board and Trump's ally, who advocated for a larger rate cut. Democratic Senator Elizabeth Warren has accused Stephen Miran of being "Trump's puppet" and questioned his independence.
However, Miran has promised to "preserve" the independence of the central bank. The US Federal Reserve has also signaled further rate cuts by the end of the year, with up to two rate cuts possible.
European vacationers in the US are benefiting from the rate cut as it reduces the attractiveness of the US dollar and strengthens the euro. This could potentially boost tourism in the region, as travel becomes more affordable for European tourists visiting the US.
As the US economy continues to evolve, the impact of these monetary policy decisions will be closely watched by economists and policymakers alike. The goal remains to strike a balance between economic growth and price stability, a challenge that the Federal Reserve continues to navigate.
