For the third time in a row, the US Federal Reserve (Fed) is lowering its benchmark interest rate. The interest rate is being lowered by 0.25 percentage points. The interest rate is being lowered so that it is now in the range of 3.50 to 3.75 percent. The Fed announced this in a press release after a two-day interest rate meeting.
The interest rate cut is exactly as expected and will therefore not in itself move the market much. This is pointed out by Frederik Engholm, chief strategist at Nykredit. The US central bank has a two-fold goal of, on the one hand, keeping inflation at two percent in the long term, and on the other hand, that employment should be as high as possible.
Currently, the two goals require two different things. The US labor market has slowed down, which the central bank can counteract with a lower interest rate. On the other hand, inflation is still elevated and is around three percent. It is also expected that the increased tariffs may further boost price increases in the new year. And that calls for a higher interest rate. But the first has weighed the most this time, says Frederik Engholm.
- Even though inflation is high, concerns about the labor market often dominate the central bank's decisions - that is clearly the case at the moment, he writes.
Disagreement in the interest rate committee
This time, the interest rate committee has made its decision on a slightly less informed basis than usual. This is because several key figures about the American economy were not released during the period when the American government was shut down, and are therefore behind.
There has also been no consensus around the table when the decision to lower the interest rate was to be made.
Stephen Miran, who has been nominated by the American President, Donald Trump, voted to lower the interest rate by 0.50 percentage point. Conversely, two of the members wanted to keep interest rates unchanged.
US President Donald Trump has repeatedly criticized Fed Chairman Jerome Powell for not lowering interest rates quickly enough. Powell's second term as central bank chairman ends in May 2026. Trump is expected to name his successor soon.
/ritzau/
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