MICHEL MARTIN, HOST:
We wanted to dig into this a bit more, so we've called Mark Zandi. He is the chief economist at Moody Analytics. Good morning, Mark. Thanks for joining us once again.
MARK ZANDI: Good morning, Michel. Good to be with you.
MARTIN: So it's a small cut - one quarter of one percentage point. Not unusual for the Fed to make incremental moves, but will people or businesses feel this?
ZANDI: Yeah. Over time, it's cumulative. So the Fed has cut interest rates by 1.75 percentage points over the past year and a half, and that's having an impact. You can see it in credit card interest rates, so we're paying a little less on that. You can feel it in the home equity lines of credit, the cost of that. Some - a little bit on auto loans and mortgages. Small businesses feel it - right? - because they borrow from banks and banks charge the prime rate, which is tied to the federal funds rate, which is what the Fed controls and has been lowering. Stock market's up a bit because investors are happy about the Fed cutting interest rates, and that helps the economy out. The value of the dollar is down because of the cut in interest rates, and that helps on the trade side. So, you know, you add it all up over a period of time on a cumulative basis, yeah, it's a positive for the economy.
MARTIN: What do these cuts indicate about the Fed's outlook on the economy?
ZANDI: Well, they're focused on the weak economy, the weak job market in particular. The job market has gone sideways here. We're not seeing any job creation whatsoever, and there are some indications we're going to start losing jobs here. So we're going to get some data next week for October and November. That's been delayed because of the government shutdown. And I wouldn't be surprised if we saw some job loss. It's really particularly difficult for young people in their early 20s. The unemployment rate for the folk - that are folks 20 to 24 years old is now over 9%, up three percentage points in just the past couple years. Minority groups, Black population, have seen unemployment rise. So the Fed's focused mostly on that, and that's their primary concern. And that's why they've been cutting rates.
MARTIN: So three members of the rate-setting panel voted against the rate cut. One, who was appointed this year by President Trump, wanted a higher cut. Two others wanted to leave the rate unchanged. Now, you were telling us earlier that these sort of incremental moves aren't unusual. But this level of disagreement - is that unusual? And tell us a bit more about what's behind it.
ZANDI: Yeah. That's very unusual, Michel, very atypical. I think there's a bunch of reasons for that, but I think I put at the top of the list something Scott was talking about earlier. And that is the tough spot the Fed is in because of the higher tariffs and the highly restrictive immigration policy that's hammering the economy, jobs. That's why the job market - the key reason why the job market is tough as it is. And that would argue for lower rates. But, you know, tariffs and higher - highly restrictive immigration policy push up inflation. You know, we're paying more for groceries and lots of other things because of those policies. And that would argue for no cut or even, all else being equal, higher interest rates. So you're in between, in betwixt. What do you do? And that's a debate, and thus the disagreement we're seeing right now.
MARTIN: So during a business round table at the White House on Wednesday, President Trump said the U.S. should have the lowest interest rates in the world because high rates kill growth. This is what he said.
(SOUNDBITE OF ARCHIVED RECORDING)
PRESIDENT DONALD TRUMP: We have to get a mindset that when the country's doing well, you don't want to kill the growth. That's what they're doing. They kill the growth. I don't know if you guys even agree with that. They kill the growth 'cause they're so afraid of inflation, but you can have tremendous growth without inflation.
MARTIN: So as an economist, Mark, what's your response to that?
ZANDI: Well, the Fed has two very clearly defined objectives. One is growth, and a better way of putting it is full employment. You want everyone working. Everyone who wants a job should have a job. But the other objective is low and stable inflation. The Fed has defined that as 2%, based on some inflation measure. So their job is to achieve both those goals, so that's what they're trying to do. They're trying to thread that needle. And right now that needle's pretty hard to thread because of the policies of tariffs and highly restrictive immigration policy. Those things are complicating things enormously, and thus, you know, why we're in this position that we're in.
MARTIN: So before we let you go, Chairman Powell - Fed Chairman Jerome Powell used the phrase, wait and see. What specifically is the Fed looking for to figure out what to do next?
ZANDI: Well, going back to those goals, those objectives, it's looking for any sense of, you know, how they're doing on achieving those goals. So if, for example, we continue to see a very weak job market, continued job loss, unemployment continues to move higher, that would argue they got to start cutting - they have to cut more, rates more, be more aggressive in cutting interest rates. Or if the data come in and we start to see inflation starting to pick up here even more and it's very uncomfortably high - this goes to the affordability squeeze we're all struggling with - then they got to think about holding the line on rates or even raising interest rates. So that's what they're waiting for - more data.
MARTIN: OK. That is Mark Zandi, chief economist at Moody's Analytics. Mark, thank you so much.
ZANDI: Hey, thanks, Michel. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
