Federal Reserve lowers interest rate

By Khang Mischke

Washington (dpa) — The US Federal Reserve has lowered the key interest rate by 0.25 percentage points for the first time this year due to a weak labour market, with the range now between 4 and 4.25%, the board of governors said in Washington on Wednesday.

The Fed also said it is now expecting higher economic growth this year than previously anticipated, now forecasting an increase of 1.6% after it had revised its economic expectations down to 1.4% in June. For the inflation rate, the Fed continues to expect 3%.

Many analysts had already anticipated the rate cut, after the labour market in the United States had significantly weakened. US President Donald Trump had also vehemently demanded a lower rate – however, this is likely to have played only a minor role in the decision.

With the cut, the Fed’s rate-setting council is attempting to find a compromise solution for the increased risks in the labour market while inflation is rising.

Only one dissenter in vote

Of the 12 voting members at the Fed, 11 voted for a cut by one interest rate step, or 0.25 percentage points. Only Trump ally Stephen Miran, who was confirmed as an interim solution on the Fed board at the beginning of the week, spoke out for a larger cut – entirely in line with Trump’s wishes.

Lower interest rates tend to make loans cheaper for companies and consumers. More money in circulation can, in turn, stimulate the economy and thereby create jobs.

A rate cut simultaneously reduces the attractiveness of the US dollar as the euro appreciates. Even before the current interest rate decision, the European Union’s common currency had risen to around $1.18, meaning that those who usually pay in euros currently get more for their money when exchanging into dollars.

Weak growth in labour market a reason for cut

The labour market figures in the United States had recently fallen short of expectations.

Additionally, employment growth in the 12 months up to March 2025 was revised downwards by a total of 911,000 jobs – an unusually large revision.

This means significantly fewer jobs were created in the US than expected, and it is a sign that the economy is not growing as fast as thought.

KfW economist Dirk Schumacher commented that new employment had slowed down to such an extent that inflation risks associated with US tariffs had receded into the background.

Trump’s pressure likely secondary for interest rate decision

The question remains of how independent the Fed will act in the future as long as Trump is president.

Trump repeatedly pushed for earlier interest rate cuts – in vain, which is why he repeatedly called Fed chair Jerome Powell a “fool.”

The US president wants to stimulate the economy with a lower interest rate and make it easier for US citizens to buy property. The interest burden on national debt would also be reduced.

The central bank council, on the other hand, wanted to act cautiously in view of increased inflation.

Trump is increasingly trying to influence the Fed’s monetary policy course by questioning who works there.

Most recently, he initiated the dismissal of Fed Governor Lisa Cook, citing alleged irregularities in private mortgage loans. The board member is legally defending herself against this, with the president recently suffering a defeat in a US appeals court.