Washington: The U.S. Federal Reserve, under mounting pressure from President Donald Trump, has announced a quarter percentage point cut to its benchmark interest rate, marking the first reduction since December. This decision, made after a two-day Federal Open Market Committee (FOMC) meeting, signals two more potential cuts within the year as the central bank aims to bolster the economy.
According to Yonhap News Agency, the Fed's decision lowers the key rate to the 4-4.25 percent range, widening the gap between the key rates of South Korea and the United States to up to 1.75 percentage points. The Fed's statement highlighted that the unemployment rate has slightly increased while remaining low, and inflation has moved up, remaining somewhat elevated. It also points to elevated uncertainty regarding the economic outlook, with rising downside risks to employment.
During a press conference, Fed Chair Jerome Powell described the current U.S. economic situation as "challenging," with inflation risks tilted to the upside and employment risks to the downside. The FOMC members' new median economic projection anticipates the federal funds rate to decrease to 3.6 percent by the end of the year, hinting at two more rate cuts, likely in the upcoming October and December meetings.
The projection further suggests a reduction to 3.4 percent by the end of next year, slightly lower than previous estimates. The U.S. gross domestic product (GDP) is forecasted to grow by 1.6 percent this year, an increase from the earlier 1.4 percent projection. Meanwhile, Personal Consumption Expenditures (PCE) inflation, a key measure of household consumer spending, is expected to reach 3 percent by year-end.
Powell also addressed the impact of Trump's tariff policy, indicating that its effect on inflation through increased goods prices is expected to continue building into the next year. This week's FOMC meeting revealed dissent, particularly with new Governor Stephen Miran, a Trump economic advisor, opposing the 25-basis-point cut, advocating instead for a 50-basis-point reduction.
Powell emphasized the Fed's commitment to independence amidst questions surrounding political influence, particularly with Miran's recent entry into the Fed. He reiterated that the Fed's decision-making process remains data-driven, reflecting its ingrained institutional culture.
President Trump has consistently pressured the Fed for a more significant rate cut, linking it to potential economic growth and housing market benefits. His recent remarks on Truth Social called for immediate and substantial rate reductions, underscoring his strategic economic priorities.