A Heated Trade War and the Fed's Pause on Key Rates
Fed Maintains Steady Course on Interest Rates
The US Federal Reserve has kept its key interest rate steady, defying Trump's demands for a rate cut. In a move expected by analysts, the central bank left the monetary policy rate at a range of 4.25% to 4.50%. But Trump hasn't given up, continuing to heap pressure on Fed Chair Jerome Powell.
The tension between Trump and Powell is heated, especially with Trump's critiques like, "I think I understand interest rates much better than he does." However, the Federal Reserve, independent of the US government, remains adamant. Despite Trump's requests, they're not in a rush to lower rates.
The reason? Uncertainty looms large over the economic outlook, thanks to Trump's aggressive trade policies. The central bankers need clarity on how these policies will impact prices and the economy before considering any rate cuts.
Economic growth took a surprising dip at the beginning of the year, with the GDP falling by 0.3% compared to the previous quarter and year. However, the job market remains robust, which has led some experts to argue against an early rate cut.
Small Moves Expected This Year
The Fed's primary goal is to keep inflation in check and aim for an inflation rate of 2%. In March, US consumer prices rose by 2.4% year-on-year, a slight drop from February's 2.8%. Despite this, it remains to be seen how sustainable this trend is, given the recent wave of Trump's comprehensive tariff package.
High interest rates are a tool against inflation. They dampen demand, ideally discouraging companies from raising prices excessively. However, they can also slow down the economy by encouraging saving and decreasing spending.
This year, experts predict only small rate steps from the Fed. After a significant rate hike in September 2022, the Fed expects an average key rate of 3.9% by 2025, suggesting two small rate steps this year.
The Bitter Pill of Tariffs
Trump's trade policies have caused turbulence in financial markets, with frequent attacks on Fed Chair Jerome Powell only adding to the instability. However, Trump recently announced that he won't remove Powell as Fed Chair until May 2026.
On April 2, Trump imposed 10% tariffs on most imports, along with higher tariffs for several trading partners. He also announced 25% tariffs on cars, steel, and aluminum, 25% tariffs on Canada and Mexico, and 145% tariffs on China. Trump's administration is negotiating with over 15 countries to avert these higher tariffs.
Trump believes these tariffs will make America richer in the long run, bringing back manufacturing jobs. But businesses and individuals express concern about the economy due to the uncertainty surrounding the tariffs and the fear that they will lead to higher prices.
Sources: ntv.de, mpa/dpa/rts/DJ
- USA
- Jerome Powell
- Donald Trump
- Fed
- Interest rate
- Monetary policy decisions
- Tariffs
- Trade disputes
- Trade relations
- The community consensus on the Fed's decision cites the ongoing trade disputes as a reason for the employment policy's pause on key rates, which has fueled concern among businesses and finance experts.
- During a general-news brief, analysts discussed the Fed's employment policy, predicting small steps in rate changes throughout the year, with an average key rate of 3.9% by 2025.
- Amidst increasing tariffs, the policy of the US government, especially Trump's comprehensive tariff package, is causing fear in the business sector, with average citizens and workers expressing a worry about potential inflation and the economy.
- In the realm of politics and business, Trump has faced criticism for his employment policy, particularly his demands on Fed Chair Jerome Powell to lower interest rates, despite the latter's commitment to maintaining stability in the employment market.
- While Trump's employment policy continues to create turbulence in financial markets and departure from traditional employment policies, discussions around these policies are being debated extensively in public forums, with media outlets like ntv.de and finance authorities firmly analyzing the implications of these policies.
