07.05.2025 08:50
The day for the announcement of the Federal Reserve's interest rate decision has arrived. Ahead of the decision, which is eagerly anticipated and closely watched by global markets, economists have commented that the U.S. Central Bank is not expected to lower interest rates due to the unfavorable conditions created by tax tariffs.
The Federal Reserve (Fed) meeting is concluding today. After the Fed meeting, the interest rate decision will be announced. The Fed will decide between options such as 'prioritizing the fight against inflation by keeping interest rates high, doing nothing, or promoting growth and employment by lowering interest rates.'
The vast majority of analysts and investors believe that the Fed will prefer to wait and see how new taxes will affect the U.S. economy before changing interest rates.
FED CAN ACT INDEPENDENTLY
The Federal Reserve has the authority to act independently from Congress to ensure stable prices and maximum sustainable employment. The bank fundamentally achieves price stability and employment by raising or lowering short-term borrowing interest rates.
This situation reflects on borrowing costs for everything from auto loans to home mortgages, slowing down the U.S. economy.
TRUMP'S TAX POLICY AFFECTS GLOBAL MARKETS
Former U.S. President Donald Trump's high tariffs imposed on China last month and lower but widespread base taxes on other countries have caused weeks of fluctuations in global financial markets. These steps are closely related not only to foreign trade but also to the monetary policy decisions of the Federal Reserve (Fed).
WHITE HOUSE TAKES A STEP BACK ON TAXES BUT TEMPORARY
The tax policies initiated by the Trump administration have increased costs for many countries, while the White House suspended these taxes until July. This step was interpreted as a strategy to buy time to renegotiate existing trade agreements. However, this situation has increased uncertainty in the markets rather than reducing it.
IMPORT STOCKS MAY LEAD TO ECONOMIC SLOWDOWN
Economic data shows that both consumers and businesses are increasing imports before the new tax policies come into effect. This stocking trend has raised the risk of economic contraction in the first quarter of the year. This has raised concerns that the U.S. economy may slow down in the short term.
INFLATION NEAR FED TARGET BUT STILL ABOVE
While the unemployment rate continues to remain at historically low levels, the inflation rate is approaching the Fed's long-term target of 2%. However, it still remains slightly above this target. This is causing the Fed to be cautious regarding interest rate cuts.
INTEREST RATE PRESSURE ON THE FED: POLITICAL OR ECONOMIC?
Citibank economists stated in a note to investors that the Fed may reassess inflation and could be willing to lower interest rates to support the labor market. However, it was noted that a "significant weakening in the labor market" is expected for this scenario to materialize. Deutsche Bank and other analysts also predict that the Fed may adopt a wait-and-see policy before making decisions and avoid interest rate cuts in the short term.
INTEREST RATES MAY REMAIN STABLE
No interest rate cut is expected to be announced at the FOMC (Federal Open Market Committee) meeting that the Fed will hold this week. If the Fed maintains its tight stance in line with expectations, the policy rate will remain in the range of 4.25% - 4.50%, which has been in effect since December 2024.
TRUMP'S CLEAR MESSAGE: 'LOWER INTEREST RATES'
Donald Trump, in an interview over the weekend, directly called on Powell, saying, "They should lower interest rates." However, Trump also added that he does not plan to change the Fed Chair before the end of his term.