The decision of the US Federal Reserve (Fed) to keep the key interest rate unchanged at 4.25% to 4.50% on June 18, 2025, is of high significance to investors in the German-speaking area. This interest rate pause was expected by almost all market participants and reflects the assessment that inflation, with a core rate of about 2.7%, has not yet fallen sufficiently to justify interest rate cuts.
Impacts on Europe and Germany
The Fed’s decision indirectly influences the interest landscape in Europe through capital flows and exchange rates. A stable US key rate signals continued restrictive monetary policy in the US, which tends to lead investors to seek higher yields in US dollars. This can withdraw capital from European markets or at least put pressure on their interest rates.
- Bond Market: The yields on German government bonds might remain relatively stable or rise slightly under the influence of the Fed’s policy if investors prefer higher US interest rates. However, this also heavily depends on the European Central Bank (ECB).
- Stock Markets: A stable Fed interest policy ensures some predictability in the markets. The S&P 500’s reaction with a moderate increase (+0.6%) indicates an overall positive market environment despite unchanged rates. For German stocks, this could mean: no strong downward impulses from sudden interest rate hikes from the US; however, the environment remains volatile due to global uncertainties such as trade policy.
Forecast and Market Expectations
The Fed has lowered its growth expectation for the US to only about 1.4% in 2025 and sees an unemployment rate of around 4.3%. The so-called Dot Plot suggests that there could possibly be two interest rate cuts later in the year, depending on the development of inflation and economic data.
This perspective could also influence European central banks in the medium term: if inflation in Europe were to develop similarly to that in the US or if global growth were to slow down, the ECB might also have to adjust its monetary policy.
Conclusion
For investors in the German-speaking area, the Fed’s key rate remaining at a high level for the time being means:
- Stability in short-term international capital flows,
- possible slight burden for European bond yields,
- moderate support for stock markets due to predictable conditions,
- increased attention to future signals from the Fed as well as developments in trade policies and inflation worldwide.
Overall, the decision remains an important indicator for the global interest environment with direct implications for investment decisions regarding bonds and stocks even outside of the US.