Synopsis: The Federal Reserve’s small rate cut sent shockwaves across markets. Stocks soared, then slipped. Gold broke records before profit-taking dragged it down. The dollar and bonds swung wildly. Powell insists it’s just “risk management,” but Trump wants more. Investors now wonder: what comes next?
Trump’s Pressure vs Powell’s Policy: Who’s Really Driving US Rates?
After a long 9-month wait, the US central bank, the Federal Reserve, cut its base interest rate. The cut was made by 0.25%. The 0.25% cut was approved by 11 members, with one opposing. With this, the interest rate has been reduced from 4.25% to 4.00%, or from 4.50% to 4.25%.
The decision is expected to help reduce auto, personal, education loan, and credit card interest rates in the United States. Unemployment has jumped in recent months. This rise is the main reason for the rate cut. President Trump has also been pressing the Federal Reserve. He has repeatedly called for lower interest rates. At the same time, Trump has demanded a minimum reduction of at least one percent.
However, the Fed has indicated that it will cut interest rates twice more in 2025. It will also cut once in 2026. US stocks surged after the Federal Reserve's interest rate decision, but then fell. The Dow Jones Industrial Average rose 410 points (+0.9%) to an all-time high, but then fell. The S&P 500 index rose 0.1 percent, then lost 0.5 percent. The Nasdaq extended its loss from 0.3% to 0.9%.
The setback came after US Fed Chairman Jerome Powell said after the monetary policy announcement that the interest rate cut was only a 'temporary' measure. Powell said that the current interest rate cut is only 'risk management' to solve the problems facing the United States, including the crisis in the employment sector. In other words, the central bank does not intend to enter a trend of continuous interest rate cuts.
- The impact of China's decision not to buy Nvidia's chips is causing losses for the Nasdaq, which is popular with tech companies. Nvidia has fallen by 2%.
- With the reduction in the base interest rate, loan interest and EMI burdens will decrease in the US.
- Currently, President Trump believes that the impact of inflation on the people due to the tariff war can be stopped by lowering interest rates. Trump recently said that lowering interest rates will boost home sales.
- At the same time, the reduction in interest rates will also reduce savings deposits and FD interest rates, which is a setback for those who rely on bank deposits.
- From February 2020 to February 2022, the base interest rate in the US was 0-0.25 percent. To prevent a sharp increase in inflation, it was then gradually increased to 5.25-5.50% until August 2023. This was gradually reduced in 2024.
- However, after Trump came to power again, the Federal Reserve was not ready to reduce interest rates.
Dollar and bonds collapse, then rise.
Following the earlier 0.25% cut, the US dollar dropped sharply. The Fed also signaled two more rate cuts this year. As a result, the US dollar index fell. The index, which tracks the euro, yen, pound, and three other major currencies, slid to 96.30. That is the lowest level in 43 months. If interest rates are cut two more times, the base interest rate will fall to at least 3.5 percent.
The US government's bond yield (Treasury yield) will also fall in proportion to the decline in interest rates. With that, investment in them will also fall. This fear is weakening the dollar. The 10-year Treasury yield has fallen from 4.05 to 4.03 percent. When Trump took office in January, it was 4.8 percent; the US dollar index is close to 110 points.
- The weakening dollar will also benefit the Indian rupee.
- US bonds becoming unattractive will also help foreign investment flow to developing countries, including India.
- However, the dollar and bonds started to rise again after Powell’s comment.
Gold breaks record
After the Federal Reserve's announcement, the international gold price surged above USD3,700 per ounce for the first time in history. At one point, the price reached USD3,704.53, but profit-taking immediately followed. Now (12.25 pm Indian time), trading is progressing at a USD40 drop to USD3,648. If profit-taking continues, the price of gold will remain in the red. This will also prevent price inflation in Kerala.
The vote is 11-1. Who is that person? What is the decision?
The US Fed's monetary policy committee voted 11-1 to cut its benchmark interest rate. Was there anyone who opposed the decision? No. That person was Stephen Miran, whom President Trump recently appointed to the Federal Reserve Board of Directors and as governor of the Federal Reserve. He is a Trump confidant. He is also the chairman of the Trump administration's Council of Economic Advisers. Stephen argued for a half-percentage point cut.
The article under tags: #US Fed interest rate cut 2025, #Gold price hits record high, #US dollar index today, #Federal Reserve Powell statement, #Dow Jones Nasdaq market reaction
