European economists positively assess the federal bank’s decision to reduce the basic interest rate to 4%-4.25%. The German DAX rises.

The German stock market index (DAX) reacted in the morning, reacting to the US Federal Bank (FED) decision to reduce the basic interest rate by 25 basis points to now be between 4% and 4.25%. This is the first interest rates reduction from December 2024. The Fed informed that it is planning two more reductions by the end of 2025.

Outgoing US Federal Bank President Jerome Powell, however, made it clear that the Fed would not make more aggressive reductions in the basic interest rate.

European markets are positively reacting to Fed reductions

But how do European economists see the expected decision of the US Federal Bank to reduce interest rates that US President Donald Trump has long been demanding?

Philip Lausberg, an analyst at the European Policy Center (EPC) in Brussels, estimates that the reduction will lead to European stock markets as global liquidity is boosting and the investment climate improves. “Every time the US federal bank reduces interest rates, European markets react positively for about three to six months. This is because there is greater liquidity, which may boost investment. And at the same time, investors seeking higher profits, it is reasonable to extend to other markets, including European. “

Trump pressures did not play any role

For his part, the head of German Development Bank KFW Dirk Schumacher explains why the Fed’s decision is not a retreat to US President Trump’s strong pressure on Jerome Powell: “Reduction of interest rates was expected. It did not happen because the Fed has gained in the pressures of the White House, but because the US labor market is in a worse condition than in the past. Increasing jobs has slowed to such an extent that the risk of rising inflation as a result of duties has been significantly reduced. Despite the reduction in interest rates, however, pressures by President Trump will not stop. “

Lena Dreger, head of research at the Kielos Institute of World Economy (IFW): “The reduction of the basic interest rate, did not surprise anyone. A greater decrease by 50 basis points would, however, be the wrong message as inflation remains stable above 2%. The danger is large US companies to be faced with the highest and higher costs of production, which would trigger inflation. “

Source: Reuters, AP