U.S. Federal Reserve Board: Central Bank Demonstrated Continued Independence with Policy Decision

Editorial

15:54 JST, May 9, 2025

The steering of monetary policy by the U.S. Federal Reserve Board has a significant impact not only on the United States but also on the global economy.

It is important for the Fed to carry out appropriate policy management without being swayed by pressure from U.S. President Donald Trump.

The Fed has decided to leave its policy rate unchanged at 4.25%-4.50% per year. The central bank had shifted to rate-cutting from autumn last year on the grounds that inflation was heading toward subsiding, but it has kept the rate unchanged for three consecutive meetings this year.

Since the Trump administration announced reciprocal tariffs on April 2, there has been a growing sense of caution in financial markets that the U.S. economy could fall into stagflation, in which inflation and an economic slowdown progress simultaneously.

In a statement, the Fed pointed out that uncertainty had increased further. It also specified that the risks of higher unemployment and inflation had risen, confirming its concerns about stagflation.

The Fed likely weighed the risk of a resurgence of price increases at this point and decided not to cut rates. This is a reasonable decision given the high uncertainty about the future due to the high tariff measures.

At a press conference, Fed Chair Jerome Powell expressed his intention not to hurry to cut interest rates, citing that the U.S. economy is in a solid position. It is hoped that the Fed will carefully check economic and price trends when making its next policy decisions.

In the run-up to the latest meeting, Trump repeatedly called on the Fed to lower interest rates with the aim of boosting the economy. However, in response to a question about Trump’s demands for rate cuts, Powell said that it was not affecting “our job at all.”

Trump has made light of values such as freedom and democracy and has shown disregard for even the judiciary. Under such circumstances, the fact that the Fed has maintained its independence and decided not to lower interest rates appears to demonstrate that soundness still remains in the management of economic policy.

In the first place, the main cause of the difficulties the Fed is facing in its monetary policy management is the Trump administration’s unreasonable high tariff measures.

Powell warned, “If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment.” Trump should take this warning seriously and reconsider his high tariff measures.

In the current currency system based on the dollar, confidence in the Fed’s monetary policy is also extremely important for the stability of global financial markets.

Trump’s behavior, including his pressuring Powell to resign from his post last month, caused a triple sell-off of U.S. stocks, U.S. Treasury bonds and the U.S. dollar, and shook markets around the world. Trump must strictly refrain from behavior that threatens the Fed’s independence and shakes its credibility.

(From The Yomiuri Shimbun, May 9, 2025)