Despite rising inflation US Federal Reserve lowers key interest rate for the third time in a row

The US Federal Reserve has cut the key interest rate again by 0.25 percentage points - despite a recent rise in the inflation rate.

The US Federal Reserve is lowering its key interest rate for the third time in a row despite rising inflation. The Fed announced that the key interest rate would now be reduced by 0.25 percentage points to a corridor of 4.25 to 4.5 percent.

This is the rate at which commercial banks can borrow central bank money. However, the central bank of the world's largest economy is forecasting fewer interest rate hikes for the coming year than previously predicted.

The Fed's decision-makers expect an average key interest rate of 3.9 percent for 2025 (September: 3.4 percent). The prediction comes as little surprise. The resilient US economy and the strong labor market give the Fed the necessary leeway to maintain its high interest rate policy for longer. In addition, the inflation rate has recently risen again slightly. Another uncertainty factor is Donald Trump - the Republican is moving back into the White House in January.

Fed must keep inflation in check

For the coming year, the central bankers now expect an average inflation rate of 2.5 percent - higher than previously assumed. In September, the forecast for 2025 was 2.1 percent.

Core inflation, i.e. excluding food and energy prices, is also expected to be 2.5 percent next year (September: 2.2 percent). The central bankers pay particular attention to this figure in their analysis. According to experts, it reflects the general price trend better than the overall rate, as components that are prone to fluctuation are factored out.

Target value of 2 percent

The Fed's traditional task is to keep inflation in check. It is aiming for an inflation rate of two percent in the medium term. For the Fed, the fight against high consumer prices is a balancing act.

If interest rates are too high, there is a risk of recession. If interest rates are cut too early, the inflation rate could rise again. In summer 2022, it stood at more than nine percent. In response to high consumer prices, the Fed raised interest rates at a record-breaking pace at the time.

Uncertainty factor Trump

The fact that the Fed is now putting the brakes on further interest rate cuts is probably also due to Trump's economic plans. He has announced the introduction of far-reaching tariffs, for example. According to economists, this could lead to higher inflation.

Trump has repeatedly rejected the experts' predictions. Even if the Fed is keeping a low profile on this topic, it is difficult to imagine that the prospect of high import tariffs will not play a role in the Fed's forecasts.

The central bank has now also published its new economic forecast for the USA. According to this, the gross domestic product (GDP) of the world's largest economy will grow by 2.1% in 2025 (September: 2%). For this year, the Fed is forecasting growth of 2.5 percent (September: 2 percent).