The US Federal Reserve (Fed) is preparing to keep its policy interest rate unchanged at its meeting this week, despite President Donald Trump’s calls for sharp interest rate cuts. Last week, Trump inspected the Fed headquarters in a rare presidential visit and called for interest rates to be lowered from the 4.25-4.50% range to 1%. However, given that the economy has generally remained stable for the past six weeks and such sharp cuts are typical of recessions, this request is not considered realistic by the market and experts. Even among members of the Federal Open Market Committee (FOMC), the Fed’s decision-making body, support for such an aggressive rate cut is limited. Only two executives appointed by Trump—Christopher Waller and Michelle Bowman—are advocating for a small rate cut and are expected to oppose the decision if interest rates remain unchanged. The Fed’s policy decision, to be announced at 9:00 PM on Wednesday, will be scrutinized for signals of a possible rate cut in September. Markets are currently pricing in two 25 basis point interest rate cuts by the end of the year.
High Inflation, Low Unemployment
Inflation running above the Fed’s 2% target and a low unemployment rate are leading it to be cautious about interest rate cuts.
Deutsche Bank economists predict that the Fed will continue its data-driven decision-making approach, saying, “Powell will neither completely rule out nor confirm the possibility of a rate cut in September.”
