Federal ReserveFed opts for interest rate pause at first meeting after Trump's start
SDA
29.1.2025 - 20:30
Fed Chairman Jerome Powell has been repeatedly criticized by US President Donald Trump. (archive image)
Keystone
The US Federal Reserve will not touch the key interest rate at its first meeting since Donald Trump returned to the White House. It therefore remains at a high level in the range of 4.25 to 4.5 percent.
Keystone-SDA
29.01.2025, 20:30
SDA
This was announced by the Federal Reserve Board in Washington on Wednesday. This is the rate at which commercial banks can borrow central bank money.
The move had been expected - it could put the central bank on a collision course with Trump. It works independently of the US government. But Trump is a clear advocate of a low interest rate policy. He communicates this in clear terms.
The Fed justified its decision to pause interest rates with the slightly higher inflation, among other things. It went on to say: "The unemployment rate has stabilized at a low level in recent months, and conditions in the labor market remain solid."
Trump: I know better than the Fed
In a speech held via video link at the World Economic Forum in Davos last week, the Republican said: "When oil prices fall, I demand that interest rates fall immediately. And they should go down all over the world."
Trump also later emphasized that he knows more about key interest rates than the Fed. "I think I certainly know it much better than the person who is primarily responsible for that decision," Trump said, apparently alluding to Fed Chairman Jerome Powell.
Trump had repeatedly clashed with the Fed during his first term in office and heavily criticized Powell - although he had nominated him for the post himself. At the time, Trump reportedly considered firing Powell. However, this was rejected due to legal concerns. Powell's term of office ends in 2026 - at which point Trump can nominate a new Fed Chairman.
Trump had already stated that he would not nominate Powell again. Powell, on the other hand, made it clear that he would not let Trump chase him out of office prematurely. The 71-year-old had made a career in the financial world before his time at the central bank.
Inflation in the USA is stubborn
The Fed's traditional task is to keep inflation in check. It aims for an inflation rate of 2 percent. In December, this rose again slightly in the USA: Consumer prices rose by 2.9 percent compared to the same month last year. This was the third month in a row that the rate of inflation rose.
In the fight against high inflation in the US, the Fed tightened the interest rate screw considerably and raised interest rates to their highest level for more than 20 years.
In September, it initiated a turnaround in interest rates and lowered its key interest rate for the first time since the outbreak of the coronavirus pandemic. This was followed by two further rate cuts - most recently in December by 0.25 percentage points, a small interest rate hike.
The current forecast points to two small interest rate cuts this year - and thus to a more cautious approach than was envisaged before Trump's election victory in November. Although the Fed generally keeps a low profile on the subject, the hesitant approach is likely to be due to Trump's economic policy plans as well as stubborn inflation.
Trump relies on tariffs and deportations
According to experts, these could lead to higher inflation, which would limit the Fed's room for maneuver to cut interest rates. Trump wants to introduce far-reaching tariffs - for example on products from Canada, Mexico and China. He has also threatened the European Union.
High import tariffs are likely to be passed on to US companies and therefore consumers, which could fuel inflation again. Trump rejects these fears.
ECB likely to cut interest rates in the eurozone again
On Thursday, the European Central Bank (ECB) will decide on the future course of interest rates. The euro currency guardians are expected to cut key interest rates again. This would be the fifth interest rate cut in the eurozone since mid-2024 and would support the weakening economy.