LEILA FADEL, HOST:
The cost of borrowing money is holding steady for now.
STEVE INSKEEP, HOST:
Policymakers at the Federal Reserve voted to leave interest rates unchanged this week. The Fed is trying to strike a balance between keeping interest rates high enough to fight inflation, but not so high as to cause a spike in unemployment.
FADEL: NPR's Scott Horsley joins us now. Hey, Scott.
SCOTT HORSLEY, BYLINE: Good morning.
FADEL: So worries about the job market caused the Fed to lower interest rates the last three times the board met. Have those worries gone away?
HORSLEY: Not entirely. We're still seeing pretty weak hiring in the job market. Just this week, Amazon and UPS announced big layoffs. That said, unemployment is still relatively low, just 4.4% in December. And the Fed says there are some signs that the unemployment rate is stabilizing. So for the moment, the central bank is putting its focus on inflation and prices that are still going up faster than Fed Chairman Jerome Powell and his colleagues would like.
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JEROME POWELL: We do hear a lot about affordability. And we take that very seriously, and we take it to heart. The best thing we can do for people who are feeling that squeeze is to keep inflation under control and, you know, frankly, to finish the job of getting inflation back down to 2%.
HORSLEY: Inflation was more like 3% in December, according to the Fed's preferred yardstick. And Powell says a big reason for that overshoot is President Trump's tariffs. Now, U.S. importers have absorbed some of the tariff costs so far. They haven't all found their way into consumer prices. Powell thinks we are going to see some more tariff-related price hikes in the coming months, but after that, inflation might settle down unless we get a whole bunch of new tariffs.
FADEL: Now, President Trump has been leaning hard on the Fed to make deeper cuts in interest rates. What effect is that having?
HORSLEY: Not a whole lot, at least yet. Trump has tried to fire a member of the Fed's governing board. He's threatened to fire Powell himself. The Justice Department even launched an investigation of the Fed over the cost of a building project here in Washington, although Powell says that was really just a pretext and another way to put pressure on the central bank. By design, the Fed is supposed to be insulated from that kind of political influence. Powell says history shows central banks do a better job of fighting inflation when they're not under the thumb of elected leaders.
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POWELL: Every advanced economy, democracy in the world has come around to this common practice, and that is to not have direct elected official control over the setting of monetary policy.
HORSLEY: That's because politicians will almost always favor lower interest rates to juice the economy before the next election, even if higher rates might be better for the long-term health of the economy.
FADEL: Now, Powell's days as Fed chairman are numbered. Do we know yet who's going to take his place?
HORSLEY: Not yet. The president is expected to nominate a new Fed chairman pretty soon. Powell's term is up in May, so he's got two more rate-setting meetings before he gives up his leadership post. Trump clearly wants a replacement who will push for lower interest rates. And whoever the president chooses is going to face questions about, you know, whether they can act independently or if they're simply going to do Trump's bidding.
One thing to keep in mind, though. The Fed chair is just one vote among 12 people on the rate-setting committee, and that person may have limited sway over his colleagues. You know, Trump named a White House economist, Stephen Miran, to the Fed board last fall. Miran voted at three straight meetings for a supersized half-point rate cut, but none of his colleagues went along.
FADEL: NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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