The most important facts US Federal Reserve decides on interest rates - this could annoy Trump
The US Federal Reserve (Fed) will decide on the key interest rate at its meeting today. The current rate in the world's largest economy is in a range of 4.25 to 4.5 percent.
18.06.2025, 14:15
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- Despite political pressure, particularly from Donald Trump, the US Federal Reserve is likely to leave its key interest rate unchanged this evening - the last time there was a cut was in 2024.
- The Fed currently sees no acute need for action on inflation or the labor market, but warns of risks from Trump's tariff policy and geopolitical tensions.
- The Fed publishes new economic data - it had already recently adjusted its growth and inflation forecasts downwards and upwards respectively due to growing uncertainty.
This evening, the US Federal Reserve (Fed) will make another decision at 20:00 CEST: the markets are not expecting a rate cut, although President Trump is repeatedly putting pressure on Fed Chairman Powell - economic developments and geopolitical risks leave little room for maneuver.
What interest rate decision is expected from the Fed?
Most analysts expect the central bank to leave the key interest rate unchanged despite ongoing criticism from the White House. After the phase of high interest rates to combat high inflation as a result of the coronavirus pandemic, there were two interest rate cuts in the US in 2024, but none this year. The Fed's decision will be announced at 8 p.m. (CEST).
Why is the key interest rate important?
The key interest rate is the central bank's most important tool for pursuing its two central objectives: To limit inflation and to keep unemployment low.
The key interest rate determines the rate at which commercial banks can borrow money from the central bank. In a second step, the key interest rate then influences fees paid by consumers and companies.
If the Fed lowers the prime rate, for example, loans granted by banks themselves will also become cheaper in the medium term. This would have an impact on mortgages, car loans, financing for companies and the interest sometimes due on credit cards. Cheaper loans will then boost the economy because Americans will be able to spend more money and because credit-financed investments will become cheaper.
Why is Trump so keen on lower interest rates?
Just like the European Central Bank (ECB) in the eurozone, the US Federal Reserve is independent. Politicians have no direct influence on interest rate decisions. However, this does not stop politicians from making demands. In the USA, the loudest wishes and insults come from US President Donald Trump himself. He has been calling for months for lower interest rates to give the economy an additional boost.
To emphasize his demand, he has repeatedly attacked Fed Chairman Jerome Powell personally. Just last week, he called him an "airhead". At times, he also advised him to take the ECB's interest rate cuts as an example. The ECB recently cut its key interest rate to 2.0 percent.
Why is the Fed not lowering the key interest rate?
There are currently three main reasons for this:
* The Fed currently sees little need for action with regard to its targets, as the inflation rate is close to its target of two percent and the situation on the labor market also remains robust.
* The second reason is the uncertainty about future economic developments - and this has a lot to do with Trump. Since taking office in January, he has imposed or threatened to impose high tariffs on goods from various countries. This could increase prices for imported goods and also slow down growth in the US. Trump's tariffs are also weighing on the stock and bond markets.
* The geopolitical situation is also likely to play a role in the Fed's considerations: If the war between Iran and Israel were to escalate, possibly even involving the US military, there would be fears of major upheavals on the oil market. Rising oil prices would put a damper on the US economy.
What can we expect from the new economic forecasts?
The US Federal Reserve is also publishing new forecasts today for the development of the economy, inflation and the interest rate cuts it expects. In its previous forecast in March, the Fed had lowered its economic expectations in the shadow of Trump's tariff announcements. Instead of economic growth of 2.1 percent, the Fed now only expected growth of 1.7 percent. At the same time, the expected inflation rate was raised to 2.7 percent.
