Possible Rate Cut by the US Federal Reserve: What Investors Need to Know
The US Federal Reserve recently provided surprising signals for a potential shift in its interest rate policy. Following the interest rate decision on June 18, 2025, the key interest rate remained unchanged at 4.25 to 4.5 percent, but the communication from the Fed was inconsistent. Fed Chairman Jerome Powell expressed caution and pointed to existing inflation risks, while Fed Governor Christopher Waller suggested that rate cuts could be possible at the next meeting at the end of July.
Background and Current Economic Situation
Signs of a possible rate cut come despite persistently high inflation expectations. The Fed has raised its core inflation forecast for 2025 from 2.8 to 3.1 percent. At the same time, economic growth has been revised down to about 1.4 percent, indicating possible stagflation. Geopolitical risks and trade policy further complicate monetary policy decisions.
Impact on Private Investors
- Bonds: Declining key interest rates tend to lead to rising prices for existing bonds with higher coupons. However, newly issued bonds will be less attractive due to lower yields.
- Loans: Cheaper loan conditions could promote consumption and investment.
- Savings Products: Interest rates for overnight deposits, fixed-term deposits, or savings books are likely to fall and become less attractive.
- Stocks & Cryptocurrencies: Lower interest rates often increase investors’ risk appetite; stock markets and riskier investments like Bitcoin could benefit from this.
The potential rate cuts in summer 2025 have the potential to significantly impact financial markets. Private investors should closely monitor these developments and respond strategically.