The US Federal Reserve cuts interest rates:

Experts predict that the FED is likely to cut interest rates by another 0.5% this year - an indication that the road ahead for the world's number one economy is still full of thorns.

US Federal Reserve Chairman Jerome Powell. Photo: Anadolu

With 11 votes in favor and 1 against, the Federal Open Market Committee (FOMC) decided to lower the reference interest rate by another 25 basis points (equivalent to 0.25%), bringing the interest rate down to the range of 4-4.25%. New Governor Stephen Miran was the only one who opposed, saying that the FED should lower it more strongly by 0.5%. This is the first time the FED has adjusted monetary policy this year. In 2024, the FED cut interest rates three times in a row and stopped to better assess the US inflation and employment trends, especially after President Donald Trump announced a series of import tax policies.

US economic growth has slowed, inflation has edged up and remains relatively high. From June to the end of August 2025, the US labor market recorded an average of only 29,000 new jobs per month, a worryingly low level. Analysts say the US government's high tariffs have increased the risk of inflation and a weakening job market. The FED's "dual" mission is to maximize employment and stabilize prices, but these two goals are going in opposite directions. Inflation is accelerating while the job market is cooling. Therefore, the FED faces a dilemma: Cutting interest rates too sharply can restore inflation, but cutting too slowly will not effectively support the job market.

Fed Chairman Jerome Powell said the US economy has slowed significantly and needs support, while forecasting growth of 1.6% for 2025, compared to 2.8% achieved last year. In addition, the unemployment rate hit a four-year high of 4.3% in August. "It is the risks to the labor market that are at the heart of this decision. Job growth has slowed and unemployment has increased," Mr. Jerome Powell said at a press conference after the Fed announced the interest rate cut.

The Fed chairman said President Donald Trump's reciprocal tariffs have led to "a temporary change in prices." This move could lead to persistent inflation. That's a risk that needs to be assessed and managed. Therefore, the Fed's obligation is to ensure that a one-time spike in prices does not create persistent inflation. In fact, the tariffs have led to a slow but steady increase in prices. Inflation rose to 2.9% in August after falling to 2.3% in April. The Yale University Budget Lab estimates that the new tariffs cost American households an average of $2,400 more a year. Economists' biggest concern is the possibility of continued unemployment and rising prices, which could lead to "stagflation."

One of the worrying consequences of a rate cut is its impact on the US dollar. Lower interest rates tend to weaken the currency. Moreover, the Fed’s decision could trigger a wave of competing rate cuts from other central banks as countries try to maintain their export competitiveness. This could lead to a low-interest-rate environment globally, fueling asset bubbles and increasing financial instability. Another concern is the impact on global capital flows. Lower US interest rates could encourage investors to seek higher returns in emerging markets. While this could stimulate economic growth, it also poses the risk of overheating and increasing volatility in financial markets.

The first rate cut this year shows that the Fed is leaning toward protecting the job market, even if it means accepting inflation slightly above its 2% target. In other words, the Fed is not claiming to control inflation, but rather reacting to a weakening job market. Experts expect the inflationary impact of President Donald Trump's tariffs to be temporary. If not, the easing of interest rates risks causing inflation in the world's number one economy to rise over a long period, increasing the possibility of stagflation as the labor market continues to weaken.

Source: https://hanoimoi.vn/cuc-du-tru-lien-bang-my-cat-giam-lai-suat-dau-dau-voi-tinh-the-luong-nan-716673.html