Takahide Kiuchi, Executive Economist, Financial Technology Solution Division
The U.S. Federal Reserve (the Fed), which is the most influential central bank in the world, is now faced with a political intervention by the Trump Administration. President Trump has explicitly and repeatedly demanded that Fed Chair Jerome Powell lower interest rates, while Powell has remained cautious about making such cuts. The President has made personal attacks on Powell on multiple occasions, referring to him pejoratively as “Mr. Too Late”, for instance. And recently, he has even tried to exert direct influence over monetary policy through appointments to the FRB Board of Governors and vice-chairs. These moves could potentially be seen as unjustified political interventions on the President’s part.
FRB resumes rate cuts
At the meeting of the Federal Open Market Committee (FOMC) that was held on September 16 and 17, 2025, the FRB decided to lower the target range for the federal funds rate (FF) by 25 basis points, bringing the new range to 4.00% to 4.25%. This was the first time in six such meetings since December of last year that the rate was lowered. What led up to this decision, more than the effects of any political pressure, was the general weakness of the economic indicators related to labor market conditions that have been announced recently.
The FOMC Statement explained that this latest rate cut was being made in response to higher downside risks to employment, as well as a shift in the balance of risks between inflation and employment, which are the core elements of the FRB’s mandate. Chair Powell stated that he could no longer say that the U.S. labor market is “very solid”, and commented that the FRB was prepared to undertake additional easing measures to guard against any deterioration in the labor market.
Chair Powell also noted that monetary policy going forward would be decided on a per-meeting basis in line with the economic data. This remark suggests that the country’s monetary policy would not be determined based on political pressures, and would even seem to indicate a deep resolve to resist any political interventions by the Trump Administration.
We should also note that at the FOMC meeting, Stephen Miran, the Chairman of the Council of Economic Advisers (CEA) who has strong ties to President Trump and was recently appointed to the FRB Board of Governors, called for a more substantial rate cut of 50 basis points, casting the lone vote of opposition to the proposal for the 25-basis-point cut.
The FOMC Statement explained that this latest rate cut was being made in response to higher downside risks to employment, as well as a shift in the balance of risks between inflation and employment, which are the core elements of the FRB’s mandate. Chair Powell stated that he could no longer say that the U.S. labor market is “very solid”, and commented that the FRB was prepared to undertake additional easing measures to guard against any deterioration in the labor market.
Chair Powell also noted that monetary policy going forward would be decided on a per-meeting basis in line with the economic data. This remark suggests that the country’s monetary policy would not be determined based on political pressures, and would even seem to indicate a deep resolve to resist any political interventions by the Trump Administration.
We should also note that at the FOMC meeting, Stephen Miran, the Chairman of the Council of Economic Advisers (CEA) who has strong ties to President Trump and was recently appointed to the FRB Board of Governors, called for a more substantial rate cut of 50 basis points, casting the lone vote of opposition to the proposal for the 25-basis-point cut.
Appointments as a way of intervening politically in the FRB
President Trump nominated Miran, his personal economic advisor, to succeed FRB Governor Adriana Kugler who suddenly decided to step down back in August. Miran participated in his first FOMC meeting in September following his Senate confirmation, where he pushed for a significant 50-basis-point rate cut, as if reflecting the will of President Trump.
Meanwhile, President Trump has sought to have another FRB Governor, Lisa Cook, removed from office, for allegedly having committed fraud in connection with a mortgage loan. In response, Governor Cook has filed a lawsuit challenging her dismissal as unwarranted. Although Cook did take part in the September FOMC meeting, it remains possible that going forward, she might be found by a court to be ineligible to participate in FOMC meetings or be terminated, on the grounds that her position is in dispute.
In that case, the number of FRB governors attending the FOMC meetings would be down to six, comprising three governors appointed by President Trump with a hawkish stance on cutting rates who would then make up half of the participants. The five regional bank presidents on the FOMC also have voting rights at these meetings, but if half of the FRB governors (the main governing body of the Federal Reserve system) are rate cut proponents appointed by President Trump, that will only create a further incentive to lower interest rates.
Chair Powell’s term of office as Fed Chair will come to an end next May. It is expected that President Trump will look to nominate the next Chair to succeed him sometime this year, making Powell more of a lame duck as a way of mitigating his influence.
Thus, the Trump Administration’s policy is to gain more de-facto control over the FRB through appointments, seeking to drive interest rates down. Furthermore, the aim here may well be to depreciate the U.S. dollar via these rate cuts, with the goal of slashing the country’s trade deficit.
Meanwhile, President Trump has sought to have another FRB Governor, Lisa Cook, removed from office, for allegedly having committed fraud in connection with a mortgage loan. In response, Governor Cook has filed a lawsuit challenging her dismissal as unwarranted. Although Cook did take part in the September FOMC meeting, it remains possible that going forward, she might be found by a court to be ineligible to participate in FOMC meetings or be terminated, on the grounds that her position is in dispute.
In that case, the number of FRB governors attending the FOMC meetings would be down to six, comprising three governors appointed by President Trump with a hawkish stance on cutting rates who would then make up half of the participants. The five regional bank presidents on the FOMC also have voting rights at these meetings, but if half of the FRB governors (the main governing body of the Federal Reserve system) are rate cut proponents appointed by President Trump, that will only create a further incentive to lower interest rates.
Chair Powell’s term of office as Fed Chair will come to an end next May. It is expected that President Trump will look to nominate the next Chair to succeed him sometime this year, making Powell more of a lame duck as a way of mitigating his influence.
Thus, the Trump Administration’s policy is to gain more de-facto control over the FRB through appointments, seeking to drive interest rates down. Furthermore, the aim here may well be to depreciate the U.S. dollar via these rate cuts, with the goal of slashing the country’s trade deficit.
Central banks born out of a long history
The current system, in which central banks independent from the national government are exclusively responsible for setting monetary policy and issuing currency, was born out of a long history. When a government determines monetary policy or decides to issue currency, its policies can tend to become biased toward stimulating the economy through excessive monetary easing. This tends to cause inflation to rise and to put pressure on people’s lives, as history has shown again and again.
Under the current system, independent central banks tasked with maintaining stable prices are in charge of determining monetary policy and issuing currency, and this system has become entrenched the world over.
And yet even in countries where the independence of the central banks has been legally guaranteed, we have often seen cases in places like Turkey, Russia, and other authoritarian societies in which the government has unjustly intervened in monetary policy. However, such an overt case as the current one is rare among developed nations, and furthermore, given that the FRB – the most influential of all central banks in the world – is being targeted for this sort of political intervention, the world’s central banks and financial markets are greatly concerned.
If the Trump Administration does come to wield significant influence over the FRB’s monetary policy decisions, that could shake trust in the dollar, and possibly even spur a flight from dollar-denominated assets. That would bring about a triple devaluation in the U.S. financial market including the dollar’s depreciation, falling stock prices, and declining bond prices, which might throw not just the U.S. but the entire world’s financial markets into disarray.
Under the current system, independent central banks tasked with maintaining stable prices are in charge of determining monetary policy and issuing currency, and this system has become entrenched the world over.
And yet even in countries where the independence of the central banks has been legally guaranteed, we have often seen cases in places like Turkey, Russia, and other authoritarian societies in which the government has unjustly intervened in monetary policy. However, such an overt case as the current one is rare among developed nations, and furthermore, given that the FRB – the most influential of all central banks in the world – is being targeted for this sort of political intervention, the world’s central banks and financial markets are greatly concerned.
If the Trump Administration does come to wield significant influence over the FRB’s monetary policy decisions, that could shake trust in the dollar, and possibly even spur a flight from dollar-denominated assets. That would bring about a triple devaluation in the U.S. financial market including the dollar’s depreciation, falling stock prices, and declining bond prices, which might throw not just the U.S. but the entire world’s financial markets into disarray.
The Bank of Japan’s experience
Given that central bank policies have a major impact on people’s lives, it is widely considered to be desirable for the people, the government, and the legislature to exert some degree of influence or control over the central banks. For this reason, more than a few countries have implemented systems in which those responsible for deciding monetary policy at the central banks are nominated by the national government and then have to be confirmed by the legislature.
The FRB governors and vice-chairs are appointed by the President, after which they are required to be confirmed by the Senate. In Japan as well, the nine Policy Board members consisting of the Bank of Japan’s Governor, two Deputy Governors, and six members of the Board are nominated by the Cabinet with the approval of the Diet.
Thus, for a central bank to maintain its independence from politics while the national government or the legislature exerts control over its appointments is no simple matter, and can even be considered a great challenge.
In the case of the Bank of Japan, under the new Bank of Japan Law that was enacted in April 1998, the Bank of Japan’s independence (autonomy) was clearly established by law for the first time.
Prior to that, an incident had occurred in 1989 in which a news leak revealed internal plans to raise the official discount rate, and so the story was disclosed prematurely in the national press. When then-Minister of Finance Ryutaro Hashimoto read the front page of the morning newspaper that day, he became furious, stating that he, the Finance Minister, was not aware of such plans, and demanding that the Bank of Japan “scrap” the discount rate hike. This incident announced to the world that the Bank of Japan was not independent from the national government.
Nevertheless, even afterward when the Bank of Japan’s independence had been enshrined in the new Bank of Japan Law, the Bank of Japan continued to find itself under political pressure. Sanae Takaichi, who was chosen as the new president of the Liberal Democratic Party on October 4, 2025, has called for the government to participate in monetary policy as a matter of necessity, and the Bank of Japan would seem to be watching these developments closely with great concern.
While the Bank of Japan’s independence was explicitly laid out in the new Bank of Japan Law, that piece of legislation does not fully guarantee the bank’s independence from the government. Under the current system, the Cabinet has authority over its appointments, with government representatives also attending its Monetary Policy Meetings, and as such, it is not easy for the Bank of Japan to be totally independent from politics.
For the Bank of Japan, the key to ensuring its own independence arguably lies in having the public’s trust. If the Bank of Japan can earn the public’s strong trust, then even if the government were to unjustly intervene in the Bank’s monetary policy decisions, the public might criticize that move, leading the ruling party to lose a significant number of votes in the next election. Were the government to feat that, it would no longer be able to intervene in the Bank of Japan’s affairs so easily.
The FRB governors and vice-chairs are appointed by the President, after which they are required to be confirmed by the Senate. In Japan as well, the nine Policy Board members consisting of the Bank of Japan’s Governor, two Deputy Governors, and six members of the Board are nominated by the Cabinet with the approval of the Diet.
Thus, for a central bank to maintain its independence from politics while the national government or the legislature exerts control over its appointments is no simple matter, and can even be considered a great challenge.
In the case of the Bank of Japan, under the new Bank of Japan Law that was enacted in April 1998, the Bank of Japan’s independence (autonomy) was clearly established by law for the first time.
Prior to that, an incident had occurred in 1989 in which a news leak revealed internal plans to raise the official discount rate, and so the story was disclosed prematurely in the national press. When then-Minister of Finance Ryutaro Hashimoto read the front page of the morning newspaper that day, he became furious, stating that he, the Finance Minister, was not aware of such plans, and demanding that the Bank of Japan “scrap” the discount rate hike. This incident announced to the world that the Bank of Japan was not independent from the national government.
Nevertheless, even afterward when the Bank of Japan’s independence had been enshrined in the new Bank of Japan Law, the Bank of Japan continued to find itself under political pressure. Sanae Takaichi, who was chosen as the new president of the Liberal Democratic Party on October 4, 2025, has called for the government to participate in monetary policy as a matter of necessity, and the Bank of Japan would seem to be watching these developments closely with great concern.
While the Bank of Japan’s independence was explicitly laid out in the new Bank of Japan Law, that piece of legislation does not fully guarantee the bank’s independence from the government. Under the current system, the Cabinet has authority over its appointments, with government representatives also attending its Monetary Policy Meetings, and as such, it is not easy for the Bank of Japan to be totally independent from politics.
For the Bank of Japan, the key to ensuring its own independence arguably lies in having the public’s trust. If the Bank of Japan can earn the public’s strong trust, then even if the government were to unjustly intervene in the Bank’s monetary policy decisions, the public might criticize that move, leading the ruling party to lose a significant number of votes in the next election. Were the government to feat that, it would no longer be able to intervene in the Bank of Japan’s affairs so easily.
Turmoil in the financial markets could help maintain the FRB’s independence
The Bank of Japan believes that in order for it to obtain the public’s trust, it must become “more transparent” by clearly and carefully explaining its policies in a way that the public can understand. However, the unprecedented monetary easing measures that were first enacted in 2013 became extremely complicated and opaque, and so it can hardly be said that the Bank of Japan’s monetary policies have fully earned the public’s understanding and trust.
And even now, with consumer prices (excluding fresh foods) having risen year-on-year almost consistently by more than 2% for around the last three years, the Bank of Japan has said that “underlying inflation has not yet reached (the target of) 2%”, an explanation which has not been so well received by the public.
Thus, the Bank of Japan’s attempts to maintain its independence from politics by earning the public’s strong trust have made it only halfway there.
As for the U.S., it would appear that the public generally has little interest in the Trump Administration’s series of political interventions in the FRB. Meanwhile, perhaps we can expect to see concerns over the FRB’s waning independence rattle the financial market.
Financial market instability in itself is never something to be welcomed, but if the public were increasingly to view it as a detrimental effect of political meddling, they would in turn level criticism at the government, and that could lead the government to hold back from making such political interventions.
The Bank of Japan may be pinning its hopes on the power of the public to secure its independence from the Japanese government, yet for the FRB, the financial market itself could very well be the last resort for remaining independent.
And even now, with consumer prices (excluding fresh foods) having risen year-on-year almost consistently by more than 2% for around the last three years, the Bank of Japan has said that “underlying inflation has not yet reached (the target of) 2%”, an explanation which has not been so well received by the public.
Thus, the Bank of Japan’s attempts to maintain its independence from politics by earning the public’s strong trust have made it only halfway there.
As for the U.S., it would appear that the public generally has little interest in the Trump Administration’s series of political interventions in the FRB. Meanwhile, perhaps we can expect to see concerns over the FRB’s waning independence rattle the financial market.
Financial market instability in itself is never something to be welcomed, but if the public were increasingly to view it as a detrimental effect of political meddling, they would in turn level criticism at the government, and that could lead the government to hold back from making such political interventions.
The Bank of Japan may be pinning its hopes on the power of the public to secure its independence from the Japanese government, yet for the FRB, the financial market itself could very well be the last resort for remaining independent.
Profile
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Takahide KiuchiPortraits of Takahide Kiuchi
Executive Economist
Takahide Kiuchi started his career as an economist in 1987, as he joined Nomura Research Institute. His first assignment was research and forecast of Japanese economy. In 1990, he joined Nomura Research Institute Deutschland as an economist of German and European economy. In 1996, he started covering US economy in New York Office. He transferred to Nomura Securities in 2004, and four years later, he was assigned to Head of Economic Research Department and Chief Economist in 2007. He was in charge of Japanese Economy in Global Research Team. In 2012, He was nominated by Cabinet and approved by Diet as Member of the Policy Board, the committee of the highest decision making in Bank of Japan. He implemented decisions on the Bank’s important policies and operations including monetary policy for five years.
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