US Fed Lowers Interest Rates by 0.25% Following Trump Election Victory

Photo : Reuters

The US Federal Reserve moved forward with a 0.25% interest rate cut on Thursday, brushing aside concerns related to the political shift as President Joe Biden prepares to hand over the White House to President-elect Donald Trump. The decision marks a continued commitment to monetary policy goals, despite heightened attention on the economic impact of Trump’s election victory.

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The Federal Reserve, located close to the White House, unanimously agreed to reduce rates by 25 basis points to a target range of 4.50% to 4.75%. Chair Jerome Powell addressed the Fed’s stance, emphasizing that the election outcome would not alter their near-term approach. “In the near term, the election will have no effects on our policy decisions,” Powell clarified, underlining that the Fed is committed to data-driven decisions rather than speculating on political outcomes.

Powell also addressed a question on whether he would consider resigning if pressured by the incoming administration. He responded that he would not step down if asked by Trump and pointed out that the law protects the independence of the Federal Reserve Board’s governors, preventing the president from firing any of them.

For consumers, the rate cut offers potential relief for those managing mortgage payments or personal loans, areas that have been strained as the cost of living became a key issue in this election cycle. The Fed's adjustment comes as part of its ongoing efforts to navigate the economy’s needs in light of persistent inflation pressures.

Economic indicators have shown the US economy’s resilience, despite a recent hiring slowdown attributed in part to a labor strike and adverse weather. The Fed’s preferred inflation gauge showed a moderation to 2.1% as of September, reflecting easing price pressures following earlier post-pandemic inflation surges that saw prices rise over 20% in a span of several months. This inflationary period has been widely cited as one factor contributing to Trump’s electoral success.

The Fed’s latest rate reduction builds on an earlier half-point cut in September, marking the start of the current easing cycle. Analysts anticipate the possibility of further easing, with futures markets suggesting a 65% probability of another 0.25% reduction at the Fed’s next meeting in December. Jim Bullard, former president of the St. Louis Fed and now dean at Purdue University’s Daniels School of Business, noted the general stability of the labor market, expressing confidence that additional cuts would support continued growth. He also remarked that “the US economy looks quite resilient,” a sentiment echoed by other experts tracking economic indicators.

The long-term impact of Trump’s presidency on financial markets remains a point of debate among economists and investors alike. Markets are particularly focused on whether the Republican Party will control both the House and Senate, which would give Trump a unified Congress. Such an outcome has historically been favorable for markets, as divided government tends to impose checks on fiscal spending and help maintain deficit levels. Bullard noted, however, that fiscal restraint appears to have weakened across party lines, reflecting ongoing challenges for maintaining budget discipline.

Trump has, on multiple occasions, criticized Powell, despite initially appointing him to lead the Federal Reserve. He has suggested that Powell’s policies may have been politically motivated to favor Democratic interests and has raised the possibility of replacing him when his term expires in 2026. Trump has also expressed interest in influencing the Fed’s monetary decisions, which would run contrary to the Fed’s mandate of operating independently from the executive branch.

As the Fed continues to navigate this politically charged environment, the central bank remains committed to addressing inflation and unemployment independently, underscoring its role in guiding the economy toward stability while staying above the political fray.