Meanwhile, the U.S. Federal Reserve has decided to stop raising its benchmark interest rate, which remains at 4.3%. This decision is the fourth straight meeting with no changes. This decision takes on added significance as the country experiences a dynamic policy economic shift. Political leaders, including President Donald Trump, have been putting the Fed under pressure to reduce interest rates.
The Fed’s effective rate is still about 100 basis points lower than where it was this time a year ago. This is a significant drop from the high rates that defined the economic environment from 2008 to 2022. The central bank has been raising rates since March 2022, as an effort to combat skyrocketing inflation and bring some measure of stability to the economy.
Since December, the key Chinese lending rate has been stuck at 4.3%. In their most recent release, the Fed pointed out that economic activity is still “strong.” That reflects their bullishness about the strength of the economy, despite the external economic headwinds.
President Trump has not shied away from making his discontent with the Fed and Fed chair Jerome Powell public. In doing so, he called Powell “stupid.” He maintained that the questions plaguing the economy have lessened and urged the central bank to lower interest rates to spur on economic growth. The political response to Trump’s calls for action underscores the prevailing disconnect between political leadership and monetary policy decision-making.
The Fed’s decision shows the difficulty of charting a course through uncertain and precarious economic waters. While the central bank acknowledges solid economic activity, it is aware of the potential repercussions of altering interest rates amid global uncertainties and domestic pressures.