Federal Open Market Committee Left Interest Rate Target Unchanged after 9-2 Vote – Currency Thoughts
Federal Open Market Committee Left Interest Rate Target Unchanged after 9-2 Vote
July 30, 2025
This week’s FOMC meeting revised the characterization of recent economic activity from “a solid pace” to having “moderated during the first half of the year.” Characterizations of the labor market (a low jobless rate and solid conditions otherwise) and of inflation (somewhat elevate) were not changed. The decision to maintain the interest rate target of 4.25-4.50% was the same as at each of the four policy reviews during the first half of 2025, but the choice this time, unlike the prior ones, was not made unanimously. An expressed preference for a 25-basis point rate reduction by Governors Waller and Bowman had in fact been anticipated based on the comments made by them since the early June meeting.
The back story to their dissents is the relentless verbal pressure from President Trump calling for low interest rates. The object of his criticism has centered on Chairman Powell, whose term ends in mid-May. FOMC decisions are made by a committee of seven governors, the New York district President and four of the other eleven Fed district presidents on a rotating basis that changes each calendar year. Unlike the Supreme Court, the president doesn’t have the power to pick every member of the federal open market committee.
What today’s vote shows is that Federal Reserve discretion can be manipulated toward the president’s influence. Unlike others areas where the overhaul of precedent has been complete, however, monetary policy enjoys greater immunity. A Fed governor’s term is lengthy at 14 years but not infinite or at least until death as is the case with the Supreme Court. In theory, Trump and his MAGA successors could install a controlling majority on the FOMC by eventually replacing all the governors. That would take considerable time.
Even more important to remember, the Federal Reserve only controls short-term interest rates. Long-term interest rates are decided collectively by the sentiment of all market participants. The experience in other countries where central bank independence has been compromised by politicians has been that such efforts hamper the transmission and effectiveness of monetary policy changes. While politicians have successfully influenced what monetary authorities do in the short run, those effort virtually never end well in the long run.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: FOMC Decision
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