LEILA FADEL, HOST:
People looking for lower interest rates will have to wait a little longer.
STEVE INSKEEP, HOST:
Policymakers at the Federal Reserve voted to hold short-term interest rates steady for now. That's how powerful they are. They make news even when they do nothing, which is what they chose to do here while they wait to see how President Trump's trade war plays out in the U.S. economy.
FADEL: NPR's Scott Horsley has been watching the Fed's deliberations, and he joins us now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Leila.
FADEL: OK, so in its statement, the Fed pointed to growing uncertainty about the economic outlook. What does it mean by that?
HORSLEY: Well, it's been just over a month since President Trump ordered worldwide tariffs, effectively dropping a giant rock into the oceans on which global trade flows, and we're still waiting to see where the resulting waves wash up. Federal Reserve Chairman Jerome Powell says if those tariffs last, they could have a profound effect on the economy. But the Trump administration has already backtracked on some of the import taxes, so Powell says it's not clear they're going to stick around.
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JEROME POWELL: My gut tells me that uncertainty about the path of the economy is extremely elevated. The risks of higher unemployment and higher inflation have risen, but they haven't materialized yet, and that tells me the right thing to do is await further clarity.
HORSLEY: Fed policymakers voted unanimously yesterday to keep interest rates where they've been since the end of last year. They'll have another chance to adjust rates, though, in June and then again in July.
FADEL: What will Fed policymakers be watching for between now and then?
HORSLEY: They're watching for any sign of increased pressure on prices, which could rekindle inflation, or any weakening in the job market that could lead to higher unemployment. We know the trade war has taken a toll on consumer confidence. People are clearly worried about higher inflation and the prospect of widespread layoffs. But just last week, we learned that employers added 177,000 jobs in April. So Powell and his colleagues just don't feel a great sense of urgency right now to goose the economy by cutting rates.
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POWELL: People are feeling stress and concern, but unemployment hasn't gone up. Job creation is fine. Wages are in good shape. The economy itself is still, you know, in solid shape.
HORSLEY: Now, one early warning sign we have seen is the drop in cargo traffic from China. Trump's triple-digit tariffs on Chinese goods have put a big dent in shipments across the Pacific Ocean. We could start to see some empty store shelves in a few weeks because of that. But as we learned during the pandemic, when there's a problem with supply chains, there's not a whole lot the central bank and its interest rate tools can do about that.
FADEL: Now, President Trump has repeatedly called on the Fed to lower interest rates. Is that having any effect?
HORSLEY: Not really. It's made headlines, but Powell and his colleagues don't seem to be paying a lot of attention. Powell's term as Fed chairman does run out in about a year, and at that point, Trump will get to install a new chairman. Powell was asked yesterday if he might stay on the board after he steps down as chair. He didn't answer, but said he's focused on these next 12 months.
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POWELL: My whole focus is on - and my colleagues' focus is all on trying to navigate this tricky passage we're in right now, trying to make the right decisions for the people that we serve.
HORSLEY: Presidents often want lower rates to goose the economy, although most are not so outspoken as Trump is. But that's why the Fed was set up to be insulated from political pressure, so policymakers can do what they think is best for the economy, even if it's not popular in the short run.
FADEL: NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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