I. Economic Activity and Prices
I will begin with developments in economic activity and prices.
Overseas economies have grown moderately on the whole. Regarding the U.S. economy, despite initial concerns that domestic demand might decline due to the impact of wide-ranging tariffs imposed in April 2025 by the Trump administration, the actual impact has been limited. Specifically, although there was a slowdown in U.S. employment in 2025, it has been heading toward improvement in 2026, and corporate profits for IT-related firms in particular have also improved. In 2025, in light of the slowdown in employment, the Federal Reserve cut its policy interest rate in September, October, and December (Chart 1). While the Federal Open Market Committee (FOMC) participants' projections for the federal funds rate suggested further rate cuts as of the beginning of 2026, they have shifted to suggesting potential rate hikes since the middle of 2026. From the start of 2025, what might be called a "north wind" policy predominated in the United States -- i.e., a policy that, like the north wind in Aesop's fable, tends to favor pressure over persuasion, as represented by U.S. tariff policy in particular. Such a policy has a negative impact on economic growth. However, in 2026, given tax cuts and the expansion in investment spurred by deregulatory initiatives, the situation in the United States appears to be shifting to a "sun" policy, which prefers persuasion and has a positive impact on economic growth.