President Donald Trump is publicly pressuring the Federal Reserve (Fed) to immediately lower interest rates, but Jerome Powell, the chair of the Fed, is maintaining the current monetary policy stance. President Trump is arguing that the Fed should reduce the government's borrowing costs, referencing the soaring federal deficit; however, Chair Powell has drawn the line, stating that the Fed's legal responsibilities are "price stability" and "maximum employment."
President Trump recently claimed on his social media (SNS) "Truth Social" that "the Fed rate is too high at a minimum of 3 percentage points (p)" and stated, "The U.S. incurs $360 billion in refinancing costs for each percentage point per year." This was based on the argument that the interest burden of the U.S. federal debt is surging to the point where it surpasses defense expenditure.
However, key Fed officials, including Chair Powell, are drawing a line, stating that the central bank's purpose is not to support government funding. Chair Powell emphasized, "We assess based on inflation and employment indicators" and noted that "the budget situation or level of liabilities cannot be a basis for rate decisions."
The Fed is obligated to achieve both price stability (with a 2% target) and maximum employment, and currently holds the position that there is insufficient rationale for an early rate cut given the low unemployment rate and stable economic indicators. According to the recently released minutes of the Federal Open Market Committee (FOMC), the majority of members believe that enough data has not been accumulated to change monetary policy, while some members have even called for freezing rates this year.
There are also concerns that Trump's continued pressure could undermine the independence of the Fed. David Wilcox, a senior researcher at the Peterson Institute for International Economics, noted, "If the Fed begins to lower the cost of liability financing in response to the president's demands, the market will start to doubt the central bank's ability to manage prices."
Chair Powell stated at a recent meeting of central bank governors held in Portugal, "As long as the U.S. economy remains robust, we will take our time to observe the situation and approach it cautiously." This is interpreted as a preference for gradual responses rather than abrupt adjustments.
Meanwhile, the Fed recently announced that its budget for headquarters maintenance has increased by more than $600 million compared to initial plans due to factors such as a surge in commodity prices following COVID-19. In response, President Trump attacked Chair Powell, stating, "The Fed is misusing the budget amid a continuing fiscal deficit," and some Republican lawmakers have formally called for his resignation.
President Trump has already completed legal reviews on whether he can dismiss Chair Powell. The Supreme Court ruled that the president does not have the authority to remove the chairman of the Fed, but President Trump is still exerting political pressure on him.
Chair Powell's term runs until May 2026, after which he can serve as a member of the Fed Board until early 2028.