U.S. Interest Rate Unchanged: Fed Should Assess How Trump Policies Will Progress

Editorial

16:07 JST, January 31, 2025

There are strong concerns that the policies of the administration of U.S. President Donald Trump will spur inflation. It is important for the U.S. Federal Reserve Board to manage its monetary policy while keeping an eye on their impact.

The Fed has decided to leave its policy rate in the 4.25%-4.50% per year range. This was the first meeting held after the launch of the Trump administration, which insists on lowering interest rates. However, the Fed decided to halt interest rate cuts following three consecutive cuts since September last year.

There were concerns that the Fed would cool the economy too much during its phase of rapid interest rate increases that started in spring 2022 with the aim of curbing historically high inflation. However, the U.S. economy has not collapsed and is now being called the sole powerful economy in the world.

Meanwhile, the U.S. consumer price index rose 2.9% in December on a year-on-year basis, and the increases have accelerated for three consecutive months.

At a press conference, Fed Chair Jerome Powell said that the central bank will “not need to be in a hurry” to decide to cut interest rates in light of the robust economy. Also in his statement, Powell deleted the line that inflation “has made further progress” toward the 2% objective. He has probably become increasingly wary of a resurgence of price increases.

Inflation hurts household finances, especially for low-income earners, and causes social instability. The Fed should carefully inspect the economy and trends in prices when deciding on additional interest rate cuts.

The future is highly uncertain. This is because the policies of the Trump administration risk accelerating price increases.

Trump intends to pursue a high tariff policy as a means of securing “deals” for protecting the manufacturing industry and achieving other policy objectives. The Fed is urged to closely scrutinize the high tariff policy to see if it leads to higher prices.

The U.S. government has begun using military aircraft to deport illegal immigrants in a full-fledged manner. It is necessary to consider that labor shortages will invite higher wages and prices.

A war of nerves has already begun between Trump and the Fed over interest rate cuts. There also are concerns that confusion may spread to the financial markets.

At the end of last year, the Fed announced that it expects to cut the rate twice in 2025. Financial markets are increasingly expectant that the next policy rate change will happen around June.

Trump has an obsession with cutting interest rates, hoping that it will have the effect of boosting the economy and stock prices.

After the Fed’s recent decision, Trump expressed his dissatisfaction with the Fed and Powell by posting on social media that they “failed to stop the problem they created with inflation.”

If hasty interest rate cuts lead to unstable inflation, it will affect the administration’s approval ratings. The situation would not be advisable for Trump either. He should respect the independence of the Fed’s monetary policy.

(From The Yomiuri Shimbun, Jan. 31, 2025)