A MART脥NEZ, HOST:
The Federal Reserve is warning that President Trump's new tariffs could hurt the U.S. economy.
LEILA FADEL, HOST:
The central bank on Wednesday cut its economic growth forecast and raised its expectations for inflation. Fed Chair Jerome Powell said that tariffs are playing a role in inflation.
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JEROME POWELL: Clearly, some of it - a good part of it is coming from tariffs.
FADEL: President Trump said later on social media that the Fed, an independent agency, should lower rates as tariffs set in.
MART脥NEZ: NPR financial correspondent Maria Aspan joins us now to explain. So, Maria, President Trump often called on Jerome Powell to lower rates in his first term. So why then, and why now?
MARIA ASPAN, BYLINE: Well, the Fed's interest rates set the bar for what consumers pay for all kinds of loans - cars, credit cards, business loans. And lower rates mean, in general, lower loan prices for consumers. But yesterday, the Fed did exactly what had been expected. It held interest rates steady, and it also signaled that it's still on track to cut interest rates twice later this year.
That said, a lot has changed in the last several weeks. President Trump has been implementing a very aggressive and very chaotic trade policy with these on-again, off-again tariffs against some of the country's largest trading partners. We've seen all this uncertainty hit consumers and businesses and stock market investors. And now the Fed is also saying that, yeah, it's dealing with more uncertainty around the economic outlook. The Fed isn't taking any major action yet. But it did say yesterday it's now expecting the economy to grow more slowly this year than it previously projected and inflation to grow faster.
MART脥NEZ: But why isn't the Fed taking more action?
ASPAN: It says the underlying economy is still strong. Unemployment remains low, and prices are still relatively stable compared to a couple of years ago. This is Chair Powell yesterday.
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POWELL: We will be watching very carefully for signs of weakness in the real data. Of course we will. But given where we are, we think our policy is in a good place to react to what comes, and we think that the right thing to do is to wait here for greater clarity about what the economy's doing.
ASPAN: Now, the Fed's job is to take the long-term view and to be steady. That becomes even more important in an uncertain environment. And Powell is also trying to maintain the Fed's independence from the White House at a time when President Trump wants to exert more control over independent agencies. So Powell is threading this needle of doing what's best for the overall economy without perhaps provoking the White House to take action against him or the Fed.
MART脥NEZ: Now, despite the Fed's warnings about the economy, investors seem pretty confident. The Dow closed up more than - actually, almost 400 points. So what has reassured investors so much?
ASPAN: Powell was pretty mild in his comments overall, and that's kind of his job. As you know, A, some of the market sell-off we saw last week started when President Trump said he couldn't rule out a recession, amid a lot of warnings about the economic damage his tariffs could do. And the argument Trump is making is that tariffs will be good for the U.S. long-term, and that will be worth any shorter-term pain. But most people don't really want to experience any pain, even if it does turn out to be shorter-term. So when Powell emphasized yesterday that the U.S. economy is strong and prices aren't soaring up too much yet - at least for the day, that was a pretty reassuring message.
MART脥NEZ: All right. That's NPR's Maria Aspan. Thanks a lot.
ASPAN: Thank you. Transcript provided by NPR, Copyright NPR.
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