Fed reserves maintain rate consistency amidst Trump's tariffs-induced uncertainties

The Current Economic Climate: Trump's Trade War's Impact

Fed reserves maintain rate consistency amidst Trump's tariffs-induced uncertainties

Leila Fadel, HOST:

If you're waiting for those sweet, lower interest rates, you might have to hold on a bit longer.

Steve Inskeep, HOST:

Yep, that's right. The policymakers at the Federal Reserve have decided to hold off on adjusting short-term interest rates. Talk about influential — they make headlines even when they're being casual! They've chosen this inactive stance while they keep an eye on President Trump's ongoing trade war and its effect on the U.S. economy.

Leila Fadel: Hey there, Scott Horsley. NPR's resident economic expert, huh?

SCOTT HORSLEY, BYLINE: Hi there, Leila. That's just one of my many hats, Leila.

Leila Fadel: So, the Fed mentioned something about uncertainty in their statement - what did they mean by that?

HORSLEY: Well, with President Trump slapping tariffs on countless items, it's like he's thrown a giant boulder into the ocean, disrupting the smooth flow of global trade. And, like the waves created by a boulder, it's still unclear where the impact of these tariffs will wash up. Federal Reserve Chairman Jerome Powell stated that if these tariffs stick around, they could significantly impact the economy. However, the Trump administration has done some backpedaling, so Powell says it's uncertain whether tariffs are going to be a long-term issue.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: My gut tells me that uncertainty about the path of the economy is extremely heightened. The risks of higher unemployment and higher inflation have risen, but they haven't materialized yet, and that tells me the right thing to do is await further clarity.

HORSLEY: And, in a unanimous decision yesterday, Fed policymakers opted to keep interest rates at their current level, which they've been at since the end of last year. They will, of course, discuss adjusting rates again during their June and July meetings.

Leila Fadel: What will policymakers focus on between now and then?

HORSLEY: They're looking out for signs of increased inflation or reduced employment. Job creation in April clocked in at 177,000, so things are still feeling solid, but people are definitely feeling the pinch of concern. However, job creation is still holding up, and wages are doing well, too.

(SOUNDBITE OF ARCHIVED RECORDING)

POWELL: People are feeling stress and concern, but unemployment hasn't gone up. Job creation is fine. Wages are in good shape. The economy itself is still, you know, in solid shape.

HORSLEY: One early warning sign we've gotten is a decrease in cargo traffic from China. The tariffs have taken a big bite out of shipping across the Pacific. We could start seeing empty store shelves in a few weeks because of that. But, as we've learned during the pandemic, when supply chains are disrupted, it's challenging for the central bank and its interest rate tools to do much about it.

Leila Fadel: Now, President Trump has repeatedly demanded that the Fed lower interest rates. Is that having any effect?

HORSLEY: To be honest, not really. It stirs up attention, but Fed policymakers don't seem to be too focused on Trump's requests. Powell's term as Fed chairman runs out in about a year, and at that point, Trump will be able to appoint a new chairman. Powell was asked yesterday whether he might remain on the board after he steps down as chair - he declined to answer, but did mention that his focus is on making the right decisions for the next 12 months and not regarding his future role.

(SOUNDBITE OF ARCHIVED RECORDING)

POWELL: My whole focus is on - and my colleagues' focus is all on trying to navigate this tricky passage we're in right now, trying to make the right decisions for the people that we serve.

HORSLEY: President's often want lower rates to stimulate the economy, although Trump is particularly vocal about it. However, the Fed was designed to be independent of political pressure, so they can make decisions that are best for the economy, even if they're not popular in the short run.

1. The Federal Reserve's decision to hold off on adjusting short-term interest rates is creating anticipation among those awaiting lower rates.
2. President Trump's ongoing trade war is causing policymakers to pause in their adjustment of short-term interest rates, as they keep an eye on its impact on the U.S. economy.
3. Scott Horsley, NPR's economic expert, explained that the uncertainty mentioned in the Fed's statement is due to the unsettling effect of tariffs on global trade, raising concerns about the economy's long-term health.
4. Fed policymakers are set to discuss adjusting rates again during their June and July meetings, focusing on signs of increased inflation or reduced employment to guide their decisions.
5. Despite President Trump's repeated demands for lower interest rates, Fed policymakers appear to be independent in their decision-making and are not primarily influenced by Trump's requests.

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