Trump in focus after expected Fed decision

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Trump in focus after expected Fed decision
Photo: Mark Schiefelbein/AP/TT

The USA's central bank, the Federal Reserve (Fed), is lowering its interest rate by 0.25 percentage points, and the rate is now in the range of 4.50-4.75 percent. After the announcement, everyone wants to know how newly elected President Donald Trump can come to influence the central bank's monetary policy.

The interest rate cut – which all members agreed on – was expected.

In a statement, the Fed writes that recent indicators suggest that economic activity has continued to expand at a good pace.

"Since earlier this year, labor market conditions have generally eased, and unemployment has risen slightly but remains at a low level. The inflation rate has approached the committee's target of 2 percent but is still slightly elevated."

Does not answer election questions

At the press conference after the announcement, Fed Chairman Jerome Powell says he will not answer questions related to the presidential election this week.

In the short term, the election will not have any effect on our policy decisions, he says, but also throws in a caveat that changes in the administration can shape the Fed's decisions in the long term.

When asked if Powell would resign if such demands are made by the newly elected president, he answers "no".

Trump "cloud" over press conference

Trump's election victory hung like a cloud over this press conference, says Elisabeth Kopelman, US economist at SEB, and continues:

He (Powell) is very clear about how he views the Fed's independence and put his foot down. If you look at how the law is written, it's very clear that the president cannot fire anyone from the Fed without "due cause" (valid reason).

Powell compared the interest rate to an airplane that needs to land and opened up for the possibility that the speed can be reduced going forward.

It was interesting. It means that we will come to a point where they won't lower, that they might consider pauses in the interest rate cut cycle, says Kopelman.

New cut expected

In September, the Fed unexpectedly cut the interest rate by 0.50 percentage points – the first cut in over four years. During 2022–2023, the Fed raised the interest rate rapidly to curb the effects of the inflation shock.

According to Kopelman, one can expect another interest rate cut of 0.25 percentage points in December.

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By TTEnglish edition by Sweden Herald, adapted for local and international readers

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