Economist Diane Swonk, head at KPMG, delves into the current status of the American economic landscape.
Host:
Hey there! President Trump keeps pressuring Federal Reserve Chair Jerome Powell to lower interest rates. But the Fed's been sticking to its guns, making independent decisions. In fact, yesterday, they announced they're keeping their benchmark interest rates steady for the fourth time in a row. Here's Powell explaining the reasoning behind it:
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Powell: The economy is doing good. Unemployment's low, and the labor market is pretty much maxed out. Inflation's come down, but it's running just a bit above our 2% goal.
Host:
That Jerome Powell, huh? One of the few folk whose job matters so much it's news when they decide not to do anything. So we got Diane Swonk on the line, KPMG U.S.'s chief economist. She can help us understand why this is a big deal. Morning, Diane!
Diane:
Good morning!
Host:
So, why is the Fed keeping rates steady?
Diane:
Basically, Jerome's saying, "Nope, no news here. Move along." See, they're not planning to cut rates anytime soon because of the fear of inflation. If this were a normal scenario, they'd already be slashing rates back to what they consider neutral, around 3%, but they're remaining cautious due to uncertainties about tariffs and their potential impact on inflation.
Host:
So what Jerome is sort of hinting at is, "I'd like to cut rates, but the president or trade partners might impose more tariffs. We're unsure what's going to happen."
Diane:
Exactly! It's not just the potential for more tariffs—it's the ones already in place that have caused more issues than anyone thought. And they're causing supply chain disruptions that feel a lot like the pandemic did. The Fed doesn't have the same cushion of COVID-related stimulus to support the inflation we're experiencing now.
Host:
Alright, so what does all this mean for me as a consumer or a homebuyer/seller?
Diane:
Well, it means it's gonna cost more to get credit, and that's not gonna change any time soon. The reason is that the Fed wants to stem demand to meet a supply-constrained economy. Have we forgotten what happened during the pandemic, and how quickly we saw blistering inflation then? The Fed's not interested in another spike in inflation after another supply shock. This isn't a one-time shock, and the Fed won't move until they see the effects dissipate.
Host:
All right, last question: If I'm trying to save some cash, can I earn a little more interest?
Diane:
Yep, you can get a bit more interest on your savings!
Host:
Diane Swonk, KPMG U.S.'s chief economist, thanks for enlightening us on all this!
This transcript is created for informational purposes only and may not be entirely accurate; refer to the original NPR transcript for the most precise information.
Enrichment Data:
The current Fed interest rate range is 4.25–4.5%. The slowdown in inflation (despite being slightly above the 2% target) and uncertainties influencing the tariffs have contributed to the Fed's cautious stance. Tariffs can push up prices and cause supply chain disruptions, potentially leading to stagflation (high unemployment and inflation). The Fed's aim is to strike a balance between addressing inflation risks and supporting economic stability. Market projections indicate a potential 0.5 percentage point rate cut by the end of the year if conditions improve.
- With the Federal Reserve keeping interest rates steady due to fears of inflation and uncertainties about tariffs, the economy's current state could have an impact on finance and business, potentially affecting consumers and homebuyers/sellers.
- The Fed's cautious stance on interest rates could influence the finance and investment sector, as consumers might see a decrease in the return on their savings, while the economy's potential for stagflation (high inflation and unemployment) could have a broader impact on various business sectors.
