SCOTT DETROW, HOST:
The Federal Reserve lowered its benchmark interest rate today for the second time in six weeks. The widely expected move is designed to provide support for the job market, which has been showing signs of weakness. Fed policymakers were somewhat handicapped by the government shutdown, which has choked off much of the official data used to keep tabs on the economy. NPR's Scott Horsley joins us now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi. Good to be with you.
DETROW: So what did the Fed hope to do with these lower interest rates?
HORSLEY: Well, what they're hoping to avoid is a big jump in unemployment. You know, we've seen a slowdown in hiring in recent months. Employers actually cut the number of jobs in June. And, you know, just this week, we've seen some big companies announcing widespread layoffs. General Motors is cutting 1,700 factory jobs. Amazon is cutting 14,000 corporate jobs. Amazon, by the way, is a financial supporter of NPR and pays to distribute some of our programming. So Federal Reserve Chairman Jerome Powell says, by making it cheaper for both businesses and shoppers to borrow money, the central bank hopes to prop up the sagging job market.
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JEROME POWELL: By lowering rates at the margin, that will support demand and that will support more hiring. And that's why we do it.
HORSLEY: But Powell cautions some of the slowdown in hiring is the result of fewer people being in the labor market, either as immigrants get deported or baby boomers retire. Lower interest rates are not going to change that supply of workers, but they might help to the extent that demand gets boosted.
DETROW: But a big reason why interest rates were up was it was a plan to fight inflation, right? Is there a danger that lower rates will open the door for more inflation?
HORSLEY: There is. And that's why this is such a challenging moment for the Fed. Usually when you have slow job growth, it's coupled with slow price growth. But we still have prices climbing about 3% a year, which is faster than the Fed would like. And in recent months, inflation has been getting worse, not better. That's partly due to President Trump's tariffs. Powell thinks those tariff-related price hikes are going to be with us for a little while now. But at some point, he and many of his colleagues at the Fed think tariffs' effects on inflation will run their course.
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POWELL: Once the last tariff is put on something, at that point, it becomes a higher price level, but it stops going up.
HORSLEY: But that's not guaranteed. So for now, the Fed is going to be watching prices very closely.
DETROW: At the same time, the federal government is the source of a lot of our data about the economy. How much harder has the government shutdown made the Fed's job?
HORSLEY: It certainly has not helped. You know, many of the official economic indicators the Fed would ordinarily rely on to track the economy have not been available for the last month or so. And if the shutdown drags on much longer, we may never get an official tally of inflation or job growth for October, for example. Powell said today that could make the Fed very cautious about ordering another rate cut at its next meeting in December.
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POWELL: What do you do if you're driving in the fog? You slow down. So I'm not committing to that. I'm just saying it's certainly a possibility that you would say, we really can't see, so let's slow down.
HORSLEY: Now, that was disappointing for investors, who'd been pretty much banking on another interest rate cut in December. They're a lot less confident about that now, so stocks lost a little ground today.
DETROW: The vote was not unanimous. How unusual is that?
HORSLEY: It's not unusual to have some disagreement. What was striking about this meeting is you had disagreement in both directions. You had Stephen Miran, the newest Fed governor appointed by President Trump a couple of months ago, who wanted a bigger, half-point rate cut. And then you had Jeffrey Schmid, the head of the Kansas City Federal Reserve Bank, who wanted to leave rates unchanged. So it just goes to show you what a pickle this uncertain economic moment is presenting for the Fed right now.
DETROW: That is NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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