Monetary policy: US Federal Reserve keeps key interest rate stable

Despite repeated calls from President Donald Trump for an interest rate cut, the US Federal Reserve is once again keeping the key interest rate stable. This means it remains at a high level in the range of 4.25 to 4.5 percent, as announced by the Federal Reserve Board in Washington. Uncertainty about future economic developments remains high, it said. Following the coronavirus pandemic, interest rates in the US rose sharply to combat high inflation. Since then, there have been two interest rate cuts in 2024, but none this year.

The Fed now expects lower economic growth this year. The central bank now anticipates only an increase of 1.4 percent instead of 1.7 percent. The central bank also expects a higher inflation rate of 3.0 percent instead of 2.7 percent. However, according to a forecast, a majority of the members of the central bank's governing council still expect two interest rate cuts of 0.25 percentage points each this year.

The key interest rate is the central bank's most important tool for pursuing its two central goals: limiting inflation and keeping unemployment low. The key interest rate determines the rate at which commercial banks can borrow money from the central bank. Second, the key interest rate influences fees paid by consumers and businesses. If the Fed lowers the key interest rate, for example, loans issued by banks themselves become cheaper in the medium term, and investments become cheaper.

The independence of the U.S. Federal Reserve is guaranteed by law. But that doesn't stop President Donald Trump from regularly calling for lower interest rates to further stimulate the economy.