The Decision of the Federal Reserve
The decision of the Federal Reserve (Fed) to keep the benchmark interest rate unchanged at 4.25% to 4.50% on June 18, 2025, has significant implications for financial markets and investors. This decision is not only a monetary policy measure but also affects economic development and financing conditions in the U.S.A.
Background of the Decision
The Fed justified its decision based on the current economic situation. Despite stable economic activity and a low unemployment rate, inflation remains a central issue. The PCE core inflation is at 2.7%, which is above the Fed’s target of 2%. Jerome Powell, the chairman of the Fed, emphasized that inflation has not decreased sufficiently to justify interest rate cuts.
Impact on the Markets
The markets reacted cautiously to the decision. The S&P 500 rose by 0.6%, the Dow Jones by 0.4%, and the Nasdaq by 0.8%. Analysts are divided on future interest rate cuts. Some expect a cut in July or September 2025, while others anticipate a longer pause due to trade policy.
Economic Forecasts
The Fed has lowered its growth forecast for 2025 to 1.4% and expects an unemployment rate of 4.3% by the end of the year. The Fed governors’ dot plot indicates two possible interest rate cuts in 2025, which could lead to a benchmark rate of 3.75% to 4% by the end of the year.
Political Context
The Fed’s decision also falls within a political context. President Donald Trump has repeatedly called for interest rate cuts and has criticized Jerome Powell. However, Trump’s demand for a decrease of 2 percentage points was not considered.
Trade Policy and Economic Effects
The Fed’s decision was also influenced by trade policy. The 90-day suspension of Trump tariffs ends on July 9, 2025, which may influence further monetary policy measures. Trade policy has temporary effects on the economy, which the Fed considers in its decisions.
Overall, the Fed’s decision to keep the interest rate unchanged shows that the central bank is taking a cautious stance and responding to economic indicators. Future developments, especially regarding inflation and trade policy, will be crucial for future monetary policy.