The Federal Reserve Cuts Interest Rate, Lowering its Benchmark Rate to 4.00-4.25%
By The Blog Source
The Federal Reserve lowered its benchmark rate to 4.00–4.25% on Wednesday, a quarter-point decrease in interest rates. The action, which is the first rate cut since December 2024, paves the way for more cuts later this year after months of pressure from President Trump.
The Fed stated that while the labor market has cooled and economic growth has "moderated," Trump's insistence on lower interest rates to boost the economy was the main driver. Recently appointed to the Fed board, Governor Stephen Miran demanded a larger half-point cut to offer more substantial aid.
The effective rate is anticipated to drop to 3.6% by the end of 2025, according to Fed forecasts, which now include three decreases in 2025—more than originally anticipated.
Following months of pressure from President Trump, the Federal Reserve announced its first rate decrease of 2025 on Wednesday, bringing its target rate down to 4.00–4.25%. Despite Trump's repeated warnings that high rates were impeding growth, officials had avoided action earlier in the year, so this step represents a major shift.
According to recent data, economic activity growth slowed in the first half of the year. The unemployment rate has slightly increased but is still low, and job growth has stalled. The Fed stated in its announcement that inflation has increased and is still relatively high.
It wasn't a unanimous vote, though. Fed Governor Stephen Miran requested a bigger half-point decrease when he was sworn in Tuesday. His disagreement highlighted Trump's resolve to pressure the Fed into providing more robust relief for families and companies.
Fed officials issued updated forecasts in conjunction with the ruling, confirming the effectiveness of Trump's pressure campaign. Policymakers now anticipate three rate decreases this year, bringing the effective rate down to 3.6% by December, in contrast to their June projections.
Borrowers will benefit immediately from the cut on variable-rate loans and credit cards, unlike mortgage rates, which had already begun to drop in anticipation of Trump's triumph on this issue. High borrowing costs may rekindle the long-hampered housing market.
The political drama of the meeting also brought attention to Trump's power over a central bank that has frequently disregarded his demands. While Trump remains adamant that he will not extend Jerome Powell's term when it ends in 2026, Miran's presence signified a departure from the existing norm.
In the end, the cut demonstrated that the Fed was giving in to reality, and after months of opposition, the central bank is now finally taking Trump's lead.
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