US Federal Reserve cuts interest rates for first time this year after Trump tirade

The Federal Reserve cut interest rates^[1] in the United States last night in the most politically charged meeting at the central bank for years.

Amid unrelenting pressure from Donald Trump for lower borrowing costs, the Fed reduced its benchmark rate by 0.25 percentage points to between 4 per cent and 4.25 per cent.

It was the first rate cut since December last year and followed repeated attacks on the US central bank by the President for leaving rates too high for too long.

Fed chairman Jerome Powell admitted that inflation^[2] remains ‘somewhat elevated’ above the 2 per cent target at 2.9 per cent.

But explaining the reason for the cut, he highlighted concerns about hiring, saying: ‘Job gains have slowed and downside risks to employment have risen.

‘Recent indicators suggest that growth of economic activity has moderated.’

Pressure: US Federal Reserve chairman Jerome Powell (pictured) admitted that inflation remains ‘somewhat elevated’ above the 2% target at 2.9%

Trump has labelled Powell ‘too late’ for refusing to act sooner, branding him a ‘moron’, a ‘numbskull’ and a ‘stupid person’ in a prolonged campaign for lower rates.

The constant broadsides, and Trump’s quest to put more of his own appointees inside the Fed, have raised questions about the central bank’s independence.

But the President may be disappointed with last night’s decision to reduce rates by only a quarter-of-a-percentage point, having demanded ‘a big cut’.

Only Stephen Miran – Trump’s top economic adviser in the White House who joined the Fed this week – voted for a larger, 0.5 percentage point, cut.

Fed officials indicated that there would be two more rate cuts this year, one in 2026 and one in 2027 – but there were huge splits over the outlook.

Powell insisted the Fed was ‘strongly committed to maintaining our independence’.

But Neil Wilson, UK investor strategist at Saxo Markets, called it ‘a political cut’, and said ‘political appointee’ Miran was ‘already making waves’.

Trump has waged war on the Fed since returning to the White House, threatening to fire Powell before the end of the Fed chairman’s term next May. 

The President has also sought to remove governor Lisa Cook and this week installed Miran, who is now on leave as the head of Trump’s Council of Economic Advisers.

While a majority at the Fed see rates ending the year at between 3.5 per cent and 4.25 per cent, huge divisions have opened up.

One unnamed official said last night’s cut would need to be reversed while another, thought to be Miran, pencilled in reductions all the way to between 2.75 per cent and 3 per cent.

Lindsay James, an investment strategist at Quilter, said: ‘Trump will not yet be satisfied.

‘He has repeatedly called for far deeper cuts, and that pressure is unlikely to let up.

‘He has made no secret of his want for a more compliant central bank, and today’s cut may just add fuel to that fire.’

Although inflation has picked up in the US, it is below the 3.8 per cent rate seen in the UK.

And the latest jobs report showed that only 22,000 were added in the US last month, fuelling fears about the health of the world’s largest economy.