Fed’s Monetary Policy: Pressure from Trump to Cut Rates Invites Confusion

Editorial

15:22 JST, August 1, 2025

U.S. President Donald Trump’s repeated demands for interest rate cuts will only cause confusion. It is important for the U.S. Federal Reserve Board to continue to implement its policies without being swayed by pressure.

The Fed has decided to keep its policy interest rate unchanged at 4.25%-4.50% per year. This is the fifth consecutive meeting this year where the rate has been left unchanged.

Trump continues to put pressure on the Fed to cut interest rates with the aim of boosting the economy, and last week he visited the Fed headquarters. The Fed’s decision was apparently an indication of Fed Chair Jerome Powell’s intention not to bow to such demands.

The Trump administration imposed “reciprocal” tariffs and other measures in April. The U.S. consumer price index in June rose 2.7% from a year earlier, and rate of increase is accelerating. The Fed likely judged that it should not let its guard down against the possibility of a reignition of price increases due to the impact of the tariffs.

Negotiations with Japan and other major countries and regions over reciprocal tariffs have been settled, and the uncertainty about the future has been dispelled to a certain extent. However, more than a few exporting companies have been refraining from passing along tariff costs through export prices until the tariff rates are settled.

These companies are likely to pass along tariff costs through export prices going forward. The new tariff rates effective on Aug. 1 are historically high, even though they are lower than initially planned.

Hasty interest rate cuts could spur high inflation, directly impacting household budgets for low-income earners. The Fed needs to pay utmost attention to price trends when determining the timing of rate cuts.

In its statement, the Fed revised its wording from “economic activity has continued to expand at a solid pace” to “growth of economic activity moderated.”

The rift that has emerged within the Fed is concerning. At the meeting, two board members voted against the decision, claiming the need for rate cuts. It is reportedly the first time in about 32 years that multiple board members have opposed a decision.

Both of those who opposed the decision were appointed by Trump during his first term. One of them is seen as a candidate for the next Fed chair. There is also a possibility that Trump’s pressure for rate cuts has influenced the split in voting.

The Fed’s monetary policy has a significant impact on global exchange, stock and other markets, including in Japan.

If internal conflicts deepen in the Fed, it will become difficult to predict its policy management, which could undermine financial market stability.

Meanwhile, the Bank of Japan has decided to keep its policy interest rate unchanged at around 0.5%. This marks the fourth consecutive meeting since the rate increase in January that the central bank has decided not to raise rates.

The BOJ intends to implement additional rate increases if economic and price conditions undergo continued improvement. The hope is that the central bank will carefully assess the impact of U.S. tariffs and determine the appropriate timing for any rate increase.

(From The Yomiuri Shimbun, Aug. 1, 2025)