Fed decides to keep interest rough again, but expects two reductions this year

The Federal Reserve left the interest on Wednesday again, but will hold on to its expectations of two interest rate letings in 2025. According to the Central Bank, economic uncertainty remains high, although according to policy makers there is a little more clarity than before.

Fed maintains interest on interest in awaiting inflation effects

The Federal Open Market Committee (FOMC) unanimously decided on Wednesday to maintain interest in the bandwidth of 4.25 to 4.5 percent. That interest has been at this level since the beginning of this year and, according to the Central Bank, remains necessary to control inflation.

Yet the Fed remains cautious. According to the central bank, the uncertainty about the economy has decreased slightly, but still considerably. In her latest prospects, she expects less growth, more inflation and slightly higher unemployment. Economic growth in 2025 is now estimated at 1.4 percent, compared to an earlier expectation of 1.7 percent. Inflation would be 3 percent at the end of next year, and unemployment rise to 4.5 percent.

Trump policy ensures headaches with policy makers

In the run -up to this meeting, several policy makers hinted for the time being that they would not want to hurry with interest adjustments. An important reason: uncertainty about the economic policy of President Donald Trump. His recent introduction of new import tariffs – some of which have since been adjusted – could stir up inflation, while at the same time it can slow down economic growth.

That ensures a dilemma at the Fed. High inflation normally requires a more restrictive policy, but slower growth is relaxed. The central bank therefore removed the earlier passage stating that the risks for unemployment and inflation had increased, and opts for a cautious approach.

Markets count on interest reduction in September

The financial markets hardly responded to the Federal Reserve interest rate decision, which is logical: the decision was widely expected. However, the chance of an interest rate reduction increased in September. Investors now estimate that chance at 74 percent, compared to 66 percent before the announcement. In the meantime, the market prices also include the expectation that the FED will be implementing two interest rates this year.