The Federal Reserve lowers interest rates again in the US

BarcelonaThe Federal Reserve (Fed, the US central bank) cut interest rates again on Wednesday, this time by a quarter of a percentage point. This marks the third consecutive rate cut, following those approved in September and in [year missing]. OctoberWhen it also reduced the cost of credit by 0.25 points on both occasions.

Thus, the price of money in the world's largest economy will now be in a range between 3.5% and 3.75%, according to a statement from the institution. The Fed has detected that the uncertainty of the economic situation has caused a slowdown in growth that is negatively affecting unemployment.

The decision to raise or lower interest rates depends on the economic situation. Specifically, the Fed has a dual mandate: to promote job creation and at the same time keep inflation close to 2% annually, the figure that the Fed itself has set as a target. According to economic theory, a decrease in interest rates makes loans cheaper, which favors economic activity (households and businesses can borrow to consume or invest) and, therefore, the creation of new jobs, but at the cost of raising the prices of consumer goods and services.

That's why Federal Reserve Chairman Jerome Powell has described the current situation as "difficult." On the one hand, the labor market has deteriorated in recent months and unemployment has risen, justifying a rate cut. But at the same time, inflation is also rising, which would point to the opposite decision: raising the cost of money. Finally, the members of the Federal Open Market Committee (FOMC, the internal body that decides interest rate policy) have opted to try to stimulate economic activity by making credit cheaper.

"Economic activity has expanded at a moderate pace," Powell explained at a press conference in Washington, something that is partly due to the federal government being shut down for several weeks because of the lack of a budget agreement in Congress, but he expects this will be offset in the coming months. "The unemployment rate has risen slightly since September," while "inflation has been increasing so far this year," the Fed chairman added.

Asked about the fact that the main concern of US citizens is the cost of living, Powell justified the decision by saying that part of the inflation is due to the cost increases that occurred in 2022 and that the solution must also involve creating "a strong economy where wages rise."

Internal disagreements

However, the decision was not unanimous, as two FOMC members believed the rate should not be touched for a third consecutive time, while another, Stephen Miran, advocated cutting it by half a percentage point. Miran is the economist recently appointed to the FOMC by US President Donald Trump, with whom he had previously led the White House Council of Economic Advisers and is considered one of the architects of the current US administration's economic policies.

So, as expected, Miran's position of further reducing rates coincides with Trump's, who, even in his first term, had heavily criticized Powell for not cutting interest rates more to boost economic growth. In fact, until a few months ago, the US president had threatened to fire Powell despite not having, in principle, the legal authority to do so, according to the US Constitution.

Ultimately, however, Trump ruled it out and said he would wait until the Fed chairman's term ends in the spring of 2026. However, his decision could change again if the US Supreme Court rules next month that the US president does have the authority, according to the Constitution, to ensure the independence of institutions like the Fed or the Federal Trade Commission (FTC, the competition regulator), among others.