Labour market anxieties: Federal Reserve reduces interest rates in the United States
In a move aimed at boosting the economy, the US central bank, the Federal Reserve, has lowered its mortgage rates for the first time in nearly 1.5 years. The new range now stands between 4.0 to 4.25 percent.
The decision, made by the Federal Open Market Committee (FOMC), saw 11 out of 12 voting members opt for a rate cut of 0.25 percentage points. The lone dissenting voice was that of Stephen Miran, the recently confirmed interim member of PNC Bank, who advocated for a larger cut.
The rate reduction comes at a time when the US labor market data has fallen short of expectations, and the employment growth figure for the 12 months to March 2025 was revised down by a total of 911,000 jobs. Changes in immigration, according to Fed Chair Jerome Powell, are contributing to these challenges.
However, the rise in inflation was a significant concern for the FOMC in their rate decision. The lowered mortgage rates are expected to result in up to two additional rate cuts by the end of the year, a move that some economists, like Michael Heise, chief economist of HQ Trust, argue could lead to "risks to price stability."
The question remains how independent the Fed will act in the future while Trump is president. Trump has repeatedly called for mortgage rates cuts and has labeled Fed Chair Powell a "fool" on multiple occasions. The president has also been trying to influence the Fed's monetary policy through personnel disputes, such as the dismissal of Fed Governor Lisa Cook. Cook, however, is fighting back legally against the dismissal attempt and recently won a victory in a US appeals court.
Stephen Miran, the interim member who voted for a larger cut, is expected to be confirmed to join the Fed Board in 2025. His appointment may shift the policy stance slightly, as he supports more aggressive mortgage rates cuts. However, Miran has promised to "preserve" the independence of the central bank. Skeptics, such as Democratic Senator Elizabeth Warren, have accused Miran of being "Trump's puppet."
The lowered mortgage rates are good news for European vacationers in the US, as it reduces the attractiveness of the US dollar and strengthens the euro. After the rate decision, the European Union's common currency briefly rose above 1.19 US dollars, reaching its highest level since June 2021.
Young adults and minorities are currently facing particular challenges in finding jobs, according to Powell. Lower mortgage rates make loans cheaper for businesses and consumers, which can stimulate the economy and create jobs. The Fed's central bank council is attempting to find a compromise solution for increased risks in the labor market while inflation is rising.
Trump aims to boost the economy, make homeownership more affordable, and reduce the interest burden on government debt through lower mortgage rates. The president also hopes these moves will help to stimulate job growth, particularly among young adults and minorities.
The Fed's decision to lower mortgage rates amid economic uncertainties and political pressures underscores the complex challenges facing the central bank as it navigates the path to economic recovery.
