A MARTÍNEZ, HOST:
President Trump is bashing the Federal Reserve for not cutting interest rates, even as his own tariffs make that more difficult.
LEILA FADEL, HOST:
Speaking to reporters in the Oval Office yesterday, Trump suggested without evidence that there's a groundswell of people demanding lower rates from Fed Chair Jerome Powell.
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PRESIDENT DONALD TRUMP: He's going to have a lot of political pressure. You know, they are political also. And I think there's a lot of political pressure for him to lower interest rates.
FADEL: So far, most of that pressure is coming from the president himself. Trump said in a social media post that Powell's termination, quote, "cannot come fast enough."
MARTÍNEZ: NPR's Scott Horsley joins us now. Not the first time President Trump, Scott, has tried to politically pressure the central bank about lowering interest rates. So what's he unhappy about?
SCOTT HORSLEY, BYLINE: Trump complains that over in Europe, the central bank has been cutting interest rates, but here in this country, the Fed has been sitting on its hands, keeping rates relatively high. The president is also unhappy about a speech that Powell gave this week in which the Fed chairman warned that Trump's tariffs are likely to push inflation higher, at least temporarily. Trump stopped short of telling Powell, you're fired. But he made it clear he wouldn't be sorry to see the Fed chairman go.
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TRUMP: Oh, he'll leave. If I ask him to, he'll be out of there. But I don't think he's - I don't think he - I don't think he's doing the job. He's too late, always too late, a little slow. And I'm not happy with him.
HORSLEY: Powell insists he plans to serve out the remainder of his term as Fed chairman, which runs through May of next year. He also says Trump doesn't have the legal authority to fire him over a disagreement about interest rates. Now, Powell has Supreme Court precedent on his side. But the White House seems willing to test that by firing board members from other independent agencies.
MARTÍNEZ: Now, the president accuses Powell of playing politics. Is he?
HORSLEY: No. Powell and his colleagues are doing their best to respond to what's happening in the economy, not buckling to political pressure. In fact, the Fed is designed to be insulated from politics. Economist Austan Goolsbee, who also takes part in these interest rate decisions as head of the Chicago Federal Reserve Bank, says that works better than letting politicians call the shots.
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AUSTAN GOOLSBEE: Economists are virtually unanimous on the importance of central bank independence. Just look around the world at places where there isn't independence. The inflation rate is higher. The growth rate is lower. The unemployment and the job market are worse.
HORSLEY: We saw that in this country during the Richard Nixon era, when the Fed did bow to White House pressure to lower interest rates. And the result was stubbornly high inflation that lasted the better part of a decade.
MARTÍNEZ: And how did that change?
HORSLEY: Ultimately, it took another stubborn Fed chairman, Paul Volcker, to wrestle inflation under control using very high interest rates. Now, that was not popular at the time. Construction workers famously sent Volcker protest messages scrawled on two-by-fours.
MARTÍNEZ: (Laughter).
HORSLEY: But it worked. And eventually, Volcker was remembered as a hero. Goolsbee told the Economic Club of New York that Volcker's widow later gave him a piece of one of those two-by-fours as a reminder.
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GOOLSBEE: I keep that on the shelf in my office, right by my desk, for two reasons. One - this is not just a game. This is not just the markets. What the central bank does, what the Fed does, affects real people. And two - sometimes the Fed has to do the hard job.
HORSLEY: Now, today that job of fighting inflation is made even harder by Trump's tariffs, which are pushing up prices and making everything the U.S. imports more expensive. That's a big reason interest rates are staying high for now. You can see the ripple effects of that in the mortgage market, where this week, the average rate on a 30-year home loan jumped to 6.8%. If it's any consolation, though, mortgages in Paul Volcker's day soared as high as 16%.
MARTÍNEZ: Yeah. Send someone a two-by-four, you know it's serious. That's NPR's Scott Horsley. Scott, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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