The decision of the US Federal Reserve (Fed) to keep the key interest rate unchanged in the range of 4.25% to 4.5% is a anticipated measure that has significant impacts on financial markets and the economy. This decision was made after the June meeting and aligns with market expectations.
Background and Significance
- Market Expectations: The decision to leave the key interest rate unchanged was widely anticipated. Analysts and markets had expected a fourth rate pause in a row.
- Economic Indicators: The Fed indicated that economic activity continues to grow solidly, the unemployment rate is low, and the labor market remains stable. Inflation is slightly elevated but remains within the Fed’s targets.
- Political Influences: Donald Trump, who called for a 2 percentage point interest rate cut, criticized the Fed again. Despite this criticism, the Fed has maintained its monetary policy stance.
Impacts on the Markets
- Financing Costs: An unchanged key interest rate means that financing costs for companies and consumers will remain high. This can impact investment and consumption.
- Inflation Expectations: The Fed has renewed its forecast, anticipating higher inflation and lower GDP growth in 2025. The key interest rate could be in the range of 3.75% to 4% by the end of the year.
- Future Interest Rate Decisions: The so-called Dot Plot of the Fed suggests that there could be two interest rate cuts in 2025, depending on economic developments.
Interest Rate Cuts in 2025
- Expected Interest Rate Cuts: The Fed has signaled that there could be two interest rate cuts during 2025. These decisions will depend on economic conditions.
- Inflation Development: Inflation is a key factor for future interest rate decisions. If inflation remains under control or decreases, this could lead to interest rate cuts.
Overall, the Fed remains focused on its strategy to stabilize the economy while also monitoring inflation trends and other economic indicators. The decision to keep the key interest rate unchanged demonstrates that the Fed intends to maintain its monetary policy path to keep the economy on a stable growth trajectory.