Fed interest rate decision: stability or pressure from Trump?

Fed interest rate decision: stability or pressure from Trump?

On June 18, 2025, the Federal Reserve (Fed) faces an important decision regarding the key interest rate. The economic environment is currently tense and core inflation remains stubbornly above the target of 2 percent. According to the Kiel Institute for the World Economy, which has analyzed the current situation, a rate cut would hardly be justified in this context, as the disinflationary trend has largely come to a standstill since the beginning of the year ( ifw-kiel.de ).

New wage and employment data suggest the labor market remains robust. Nevertheless, there is political pressure on the Fed, particularly from US President Donald Trump, who is calling for rapid interest rate cuts. The different positions increase public polarization around Fed Chair Jerome Powell and the role of the central bank. It remains to be seen whether the Fed can fulfill its responsibility for price stability without bowing to political influences.

Economic conditions and interest rate expectations

The economic impact of tariffs and the Trump administration's migration policies also remains unclear, further complicating the situation. The conflict in the Middle East in particular could cause oil prices to rise and thus further fuel inflation. There is widespread expectation that the Fed will keep interest rates at current levels of 4.75 to 5.00 percent, despite the challenges it faces.

In comparison, the US Federal Reserve recently cut its key interest rate by 0.5 percentage points, marking the first such decision since the outbreak of the coronavirus pandemic. Before this decision, the interest rate had been kept between 5.25 and 5.50 percent for over a year. Loud tagesschau.de The interest rate increase occurred in March 2022 in response to high inflation. Although this has weakened recently, core inflation in the USA remains at 3.2 percent and shows that the Fed continues to be challenged to control inflation.

Cooperation between monetary and financial policy

The problem surrounding inflation not only affects the Fed, but also European monetary policy. The European Central Bank (ECB) plays a similar role and aims for stable price and economic policies for the euro area member states. As on the website of the ECB As can be read, the current economic situation requires close cooperation between monetary and financial policy in order to successfully overcome the challenges and maintain price stability in the long term. The situation during the pandemic has made the need for this cooperation all the more clear.

Clear conclusion: Even if the Fed is under pressure, a rate cut remains a double-edged sword. While such a move could provide short-term benefits for housing finance and consumer spending, it could create far greater problems with inflation in the long term. The Fed's upcoming decisions could therefore have far-reaching effects on the US economy and should be made carefully.