LEILA FADEL, HOST:
Now, I think what most Americans really want to know is what the Fed's rate cut means for them and their wallets. Here to talk more about the impact of the Federal Reserve decision is Stacey Vanek Smith. She's a reporter at Bloomberg Businessweek and co-host of the podcast "Everybody's Business." Good morning.
STACEY VANEK SMITH: Good morning, Leila.
FADEL: So how much of a difference does a quarter-point cut make?
VANEK SMITH: Well, a quarter percentage point is not huge, so it doesn't make a lot of difference on a practical day-to-day level if you're taking out a mortgage tomorrow versus a few weeks ago. What it does do is send a signal across the economy. I think it signals that policies are sort of loosening up around interest rates. Chair Powell did hint that there might be more cuts to come this year, maybe even a couple more. So I think the markets are especially looking at that, and that could start to really affect rates and prices for all of us.
FADEL: OK. So if these interest rates continue to come down - I mean, they indicated - the Fed indicated that they would consider a half percentage point interest rate cut later in the year. What would that do for consumers?
VANEK SMITH: Well, it can make big loans cheaper - for instance, mortgage loans. The housing market has been really stuck because of high interest rates. People don't want to sell right now. People don't want to buy right now. It could start to loosen that up. Also, construction, that's been a big one. People might feel a little more compelled to start building. Maybe businesses might feel compelled to start expanding. Lower interest rates can really give a little juice to the economy.
FADEL: Now, we heard Powell talk about two-sided risk, and that sounds like code for stagflation, slow economic growth, high inflation, high unemployment, right? I mean, how serious of a threat is that right now?
VANEK SMITH: That is a little scary. You're right. The two-sided risk is 100% code for stagflation. Like we heard Chair Powell saying, there's no risk-free path. This is a little scary. The Federal Reserve has two jobs - you know, keeping unemployment low and keeping inflation low. Those two things are a little bit opposed right now. As Scott was just saying, if you cut interest rates, you do risk inflation going up. Inflation has been rising a little bit, but the Fed was really clear their priority right now is jobs, is growing the economy to help jobs. And so he's - they're taking that path, but I think that might be part of why the cut was so small.
FADEL: Are there concerns about cutting rates too much, too fast?
VANEK SMITH: Oh, yeah. Yeah. I think that there's a big worry about that. It can - you know, it can be a really great little boost to the economy to cut rates. It helps grow the economy. It helps, you know, businesses feel freer to borrow money, spend money, hire. All this good stuff can happen. But if inflation gets out of control, we can end up in a situation like the U.S. was in in the '70s and '80s where, like you were saying, the economy is slowing down, unemployment is rising and prices are rising. That is a terrible place to be.
FADEL: Do you expect the president to let up his pressure on the Fed now that they've made this cut, a small cut but a cut?
VANEK SMITH: That's a great question. I personally don't expect the pressure to let up. I mean, this could be seen as a little victory by President Trump or at least labeled that way. Also, he has got, you know, Stephen Miran in the chair doing the job, you know, the lone dissenter, as Scott was just saying. So it seems like Trump is making his voice very heard. Very rarely have we seen a president addressing the Fed as directly, directing its policy as publicly as we've seen President Trump doing. I think he will probably continue. Also, Chair Powell's term is up in May of 2026. So, you know, they're already talking about who might replace him. I don't think the president's going to back off.
FADEL: And at this point, I mean, what are you watching for as you look at the risks ahead for stagflation?
VANEK SMITH: I'm - I mean, I think I'm looking at the same thing that Chair Powell's looking at. I mean, I don't actually know what Chair Powell's looking at, but, I mean, I think inflation numbers is the big thing. Are prices going to go up? We've got a lot of tariffs going into effect still. The impacts of that are still trickling in, so I think we can expect to see prices go up at least once. And the danger is that they'll get some momentum and we'll start to see prices creeping up and creeping up, like we did in the later part of the pandemic.
FADEL: Stacey Vanek Smith is a reporter at Bloomberg Businessweek and co-host of the podcast "Everybody's Business." Thank you, Stacey.
VANEK SMITH: Thanks, Leila. Transcript provided by NPR, Copyright NPR.
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