Public Radio for Alaska's Bristol Bay
Play Live Radio
Next Up:
0:00
0:00
0:00 0:00
Available On Air Stations

Fed Changes Course, Holds Off On Raising Interest Rates

ARI SHAPIRO, HOST:

Today the Federal Reserve sent a strong signal that it will stop raising interest rates for a while. Interest rates have steadily gone up over the past four years, one reason why mortgages have gotten more expensive. The Fed's apparent turnaround comes as economic growth is slowing in the U.S. and overseas. This news sent stock prices sharply higher. We're joined by NPR's Jim Zarroli now. Hi, Jim.

JIM ZARROLI, BYLINE: Hi.

SHAPIRO: Explain what the Fed did today.

ZARROLI: Well, the first thing it did was it decided not to raise interest rates. Now, that was totally expected. That's no surprise. But what was a surprise, what really jolted the financial markets was not what the Fed did but what Fed officials said both in the statement they released after the meeting and in Fed Chairman Jerome Powell's press conference which took place shortly afterward. And that indicated a much softer tone on interest rates.

Last year, the Fed raised interest rates four times, and this is something that has an effect on borrowing interest rates or interest rates for borrowing, whether you're talking about mortgage rates or auto loans. And in fact, this has had some effect on the housing market and on the auto market because consumers end up paying more. So what the Fed said today is just a sea change from what it was saying even just six weeks ago.

SHAPIRO: Well, can you explain what it is they said that indicates this is not just a one-off decision not to raise interest rates but actually a shift in approach?

ZARROLI: Well, it was partly what they didn't say. I mean, a month ago, the Fed was talking about gradual rate increases, which is something it does when the economy is going strong and there's a worry about inflation rising and the Fed wants to sort of nip it in the bud. This time around, they took out any reference to further rate increases and said it would exercise patience. That was the word that everyone sort of seized on, patience. Fed Chairman Jerome Powell said there's a lot of evidence that economic growth is solid, but he said the case for raising interest rates is weakening. So it appears this current round of interest rate increases is over for now. Powell made clear he can reverse course again, but rate hikes appear to be over.

SHAPIRO: What's happening in the economy right now that would make the Fed decide to change course like this?

ZARROLI: Well, you know, the case for higher rates is sort of not as strong as it was. That's really at the bottom of it. The U.S. economy has been growing at a good clip, especially last year. Unemployment rate is way down. The Fed has been worried about this, worried that it will lead to inflation, but now conditions have changed somewhat on this. The statement today issued by the Fed referred to muted inflation pressures and also readings on financial and international developments. In other words, the global economy is slowing. That's clear. And that has a way of affecting growth in the United States. So just in general, the economy is in a different place now, and the Fed believes it can sort of just stand back and watch for a while.

SHAPIRO: President Trump often attacks the chairman of the Federal Reserve. Do those attacks have anything to do with the decision that he made today?

ZARROLI: Yeah. Trump has - you know, all presidents like to keep - like the Fed to keep rates low. Trump is unusual in that he talks about it publicly. He's - you know, he's sometimes even suggested that he would like to dismiss Fed Chairman Powell. He's used words like loco to describe Fed policy. You know, the Fed is supposed to be insulated from political pressure. It's not supposed to - it's not used to dealing with direct criticism this way, and Powell was asked today at the press conference whether Trump's comments have had an impact on the Fed, whether it's affected the turnaround. What he said was - he sort of dodged the question. He said, my only motivation is to do the right thing for the American people. Whatever the reasons, it sent the stock market way up.

SHAPIRO: NPR's Jim Zarroli, thank you.

ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.