SCOTT SIMON, HOST:
Federal Reserve Chairman Jerome Powell sent the stock market soaring yesterday with his speech in Jackson Hole, Wyoming. Mr. Powell suggested the central bank could soon start cutting interest rates. He also talked about how the Fed plans to balance its twin goals of fighting inflation and unemployment over the longer run. NPR's Scott Horsley joins us. Scott, thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good to be with you, Scott.
SIMON: What got the market so excited?
HORSLEY: Investors are betting this means the Fed's going to cut its benchmark interest rate when policymakers meet in about 3 1/2 weeks. That's after the Fed's been in a holding pattern for the last eight months. Now, Powell stopped short of promising a rate cut in September but said one could be warranted, given some of the recent signs of a softening job market. We're going to get one more monthly snapshot on jobs before that September meeting. We'll also get one more update about inflation. Powell says it is clear that President Trump's tariffs are putting some upward pressure on prices, but it's not clear how big or persistent those price hikes might be.
SIMON: The Fed often has to strike a balance between fighting inflation and propping up the job market. How's the central bank approaching that?
HORSLEY: Well, its approaches are changing a little bit after its most recent review, which it does every five years or so. After the previous review back in 2020, the Fed said it was willing to let inflation run a little hotter, above its 2% target, and would not preemptively raise interest rates just because the unemployment rate was really low. Once the pandemic hit and the war in Ukraine started, though, all that kind of went out the window. And today Powell says the balancing act looks very different.
JEROME POWELL: The past five years have been a painful reminder of the hardship that high inflation imposes, especially on those least able to meet the higher costs of necessities.
HORSLEY: So the Fed is no longer talking about letting inflation run above target. It's reiterating that its target is 2% inflation and says it will act forcefully to keep people's expectations in line with that.
SIMON: Scott, you mentioned the president's tariffs. What other administration policies are affecting the Fed's calculations?
HORSLEY: The president has been waging an aggressive crackdown on immigration, which is reshaping the workforce. And the theme of this year's Jackson Hole conference is a workforce in transition. You know, thousands of baby boomers are retiring every day. Americans are not having enough new babies to maintain the population. In recent years, we've relied on immigration to close that gap, but that's largely dried up now. Both legal and illegal immigration are way down. The Trump administration argues this is going to create new opportunities for native-born workers to come off the sidelines and find jobs. But economist Joe Brusuelas of the accounting firm RSM is dubious.
JOE BRUSUELAS: I am highly skeptical that there's a reserve army of individuals ready to stream in and pick grapes, clean houses, cut yards and work in meat factories. That's just not there.
HORSLEY: Automation and artificial intelligence might help make the existing workforce more productive in the future. But until that happens, we're basically setting a lower speed limit on the nation's economic growth.
SIMON: Course, this was Jerome Powell's final appearance at Jackson Hole as Fed chairman. What kind of reaction did he get?
HORSLEY: He got a standing ovation, which probably felt pretty good. He's not been getting a lot of applause from President Trump. In fact, Powell has gotten intense criticism from the White House for not moving more quickly to cut interest rates. The Fed is supposed to be insulated from that kind of political influence so it can make tough, sometimes politically unpopular decisions on interest rates. Brusuelas warns if that independence is compromised, it will lead to worse economic outcomes.
BRUSUELAS: If we move away from central bank independence, we're not only going to have 3% to 4% inflation. We're going to have much higher inflation, and we know who's going to bear the burden of those transition costs - the middle class, the working class and the working poor.
HORSLEY: Powell has just nine months left in his term as Fed chairman. And colleagues took the opportunity of his final Jackson Hole speech to show their support, both for Powell personally and for an independent central bank.
SIMON: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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