STEVE INSKEEP, HOST:
The Federal Reserve lowered short-term interest rates.
LEILA FADEL, HOST:
That move influences other rates and should make it a bit cheaper to get a car loan, bankroll a business or carry a balance on your credit card. The central bank is trying to shore up the job market and is also facing a challenge to its independence.
INSKEEP: NPR chief economics correspondent Scott Horsley always reports independently and joins us now. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: OK. So the Fed held off cutting rates for most of this year because they were concerned about inflation. What changed?
HORSLEY: Well, they're getting more nervous about the labour market. You know, there's been very little job growth since April. And while we've not seen a whole lot of layoffs, there is concern that people who lose their jobs are having a harder time finding new ones...
INSKEEP: Yeah.
HORSLEY: ...And over time, that could push the unemployment rate up. So the Fed's trying to fight that by lowering interest rates, but it's a delicate balancing act because, you know, inflation is still higher than the central bank would like, and the Fed fights inflation by keeping interest rates high. So it's kind of a tough spot for Fed Chairman Jerome Powell and his colleagues as they try to keep both inflation and unemployment in check.
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JEROME POWELL: Ordinarily, when the labor market is weak, inflation is low. And when the labor market is really strong, that's when you've got to be careful about inflation. So we have a situation where we have two-sided risk, and that means there's no risk-free path.
HORSLEY: This week, concerns about the job market went out, so the Fed opted to lower its benchmark rate by a quarter percentage point.
INSKEEP: OK. So we've followed the whole battle over the independence of the Fed. The president has been demanding more aggressive rate cuts. Jerome Powell has been saying, we have to make our own independent choice based on the facts. But Trump now has another hand-picked person on that rate-setting committee. How much did politics affect this choice?
HORSLEY: Well, Trump's newest appointee to the Fed board, White House Economist Stephen Miran, did echo the president in voting for a bigger half-point interest rate cut yesterday, though none of his new Fed colleagues went along with that. Miran also appeared to signal that he thinks rates should be a lot lower by the end of the year. Every other meeting, Fed officials sketch out where they think rates ought to go, and those forecasters share anonymously on what's called the dot plot. It seems reasonable to assume that Miran's dot is the one that's way off by itself, projecting rates more than a full percentage point lower than they are right now. Other Fed officials are more cautious, projecting rates might drop by another quarter point, maybe another half point by year's end or, in the case of one hawkish committee member, the rates might even go back up a quarter point, presumably if inflation were to take a turn for the worse.
INSKEEP: I'm interested listening to you. It sounds like the Fed moved in the direction Trump would like, but not as far as he would like. So how much influence did he really have?
HORSLEY: Not much for now. And that's by design. As we've talked about, the Fed is supposed to operate at arm's length from the White House, so it's not swayed by short-term political pressures. Here's how Powell described it yesterday.
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POWELL: We don't frame these questions at all or see them in terms of political outcomes. I think when you get to another part of Washington, everything is seen through the lens of, does it help or hurt this political party, this politician? You know, that's the framework. And I think that is not at all the way we think about things at the Fed. We're taking a longer perspective.
HORSLEY: But that has not stopped the president from waging a high-pressure campaign for much lower rates. One thing to note - two earlier Trump appointees, Chris Waller and Michelle Bowman, did not join Miran yesterday in voting for a bigger rate cut. So for the moment, at least, the firewall between the White House and the Fed appears to be holding. We'll see if that sticks.
INSKEEP: NPR chief economics correspondent Scott Horsley. Thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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