"Hey, everyone Cardiff N Stacey here. And we know we just know that you cannot wait to discuss interest rates, and what Federal Reserve chaired your own Powell said today at the end of the two day meeting of the Federal Open Market committee or just the FOMC which is kind of like F O M O, except nobody really out on it. The ABC's the committee within the fed that meets every six weeks to vote on how to manage the economy. Oh, the anticipation we reviewed economic and financial developments in the United States and around the world and decided to leave our policy interest rate on changed. Okay. Look the tone in the language used by chair Powell are not super excited I designed yes. On purpose because the language does matter to the fed is in kind of a tricky situation not because of what's happening right now. But because of what might happen for the rest of this year today on the indicator from planet money, we speak to someone who used to be. A member of the fed. And she explains why if the fed wants to navigate its way out of this tricky situation, it will have to choose its words, so very carefully. Support for this NPR podcast and the following message. Come from Exxon Mobil, the company working to make carbon capture technology more efficient and affordable. So it can be deployed at industrial sites worldwide. Find out more at energy factor dot com. Support also comes from WordPress dot com with powerful site building tools and thousands of things that she was from users can launch his site. That's free to start with a room to grow. Get fifteen percent off any new plan. Purchase at WordPress dot com slash indicator. The Federal Reserve manages the economy by adjusting interest rates. So for example, if the fed wants to boost the economy, it will lower interest rates, so people will take out more loans because interest rates are cheaper. And then they'll use that money from those loans to buy things like houses or cars and that boost the economy, and here is what the fed is dealing with right now on the one hand unemployment is relatively low at the moment and the economy is growing at a healthy pace. So you would not think. That the fed would be planning to boost the economy any more than it already is. And in fact, the fed chose today not to further boost economy it kept interest rates right where they are on the other hand, the fed is also responsible for keeping inflation going up by two percent. A year not much lower than two percent and not much higher. It's like they're Goldilocks swit- spot. And normally when the economy is growing fast enough and unemployment is low enough, you would expect inflation to also be rising. Because when the economy is growing, it means the people have jobs and more money to buy things. And so they start spending more money, and then prices of those things go up a little that's inflation. But since the middle of last year, even though the economy has been growing inflation has been falling. And it is now well below the feds two percent target. In fact, let's make that the planet money indicator. Inflation right now is rising at one and a half percent. Maybe that falling inflation is just a blip and it'll start going back up later in the year. But if it does not start going back up towards two percent. And remember, it is the feds job to make sure it does get back up to two percent, then the fed would have to consider boosting the economy even more to bring inflation backup. And so now, we can discuss the feds dilemma, if the fed is not careful in explaining why it is boosting in a Konami that already seems to be healthy. It could send a confusing message to the public it might even backfire. So we called up someone who understands how this all works first-hand. I am Sarah bloom Raskin, I was a governor on the Federal Reserve Board and the Federal Open Market committee. I am currently a Rubinstein fellow at Duke University Sarah was on the Federal Reserve from two thousand ten to two thousand fourteen and the governor she was one of the people at the fed who always voted on monetary policy. And she said there are a bunch of different ways that the public might interpret fed decision to boost the economy later this year. So the communication becomes critical. How does the fed talk about a rate cut? Why? Exactly is the fed doing it. How were they going to communicate the reason for that move? And the words they choose are going to be really important in determining what path the economy actually takes. This communication happens in press conferences, like the one today with chair Powell and also in speeches that members of the fed give to the public that communication influences. How the public interprets any decision made by the fed and in our conversation with Sarah, she identified four different ways, the public might interpret decision to further boost the economy, I the public might think that the fed is panicking that it is boosting the economy because it thinks the economy is about to collapse. And I think if the fed were to take such an action that could itself unsettle markets and potentially tip the economy into a place that the fed didn't intend it to go. And what you mean does it if people start believing that the economy is in trouble it? Could become almost like a self fulfilling prophecy people stop spending money because they wanna make sure they have enough money to hold them over during the upcoming hard times. But if everyone stop spending money all at once that will itself bring on the hard times because he Konomi needs people to spend their money in order to keep going, obviously, the fed would like to avoid this particular interpretation of its decision. The economy's a flat circle. Which brings us to the second. Possible interpretation that the fed is boosting healthy economy. Just in case things get bad later, especially since any decision by the fed normally takes a little while to affect the economy monetary policy acts with a lab it it doesn't act immediately. So these people are going to say, let's lower rates now because we're going to be getting into choppy waters later. So that is the second interpretation if the fed decides to boost the economy later this year, it's not because the fed is panicking. But because it wants to preempt a recession before it can start the third possible interpretation, basically is why not why not the economy? What? Yeah. Let's see what this baby can do. Who cares? If it's already growing fast. Let it keep growing even faster. That would be great. It means more jobs. It means more people getting raises. Remember, it's been a long slog since the recession ended in two thousand and nine and since inflation is too low anyways booth. Getting the economy would be perfectly consistent with the feds job. It's not like boosting the economy a little more. We'll send inflation skyrocketing way above the fence target and Sarah. At least thinks that is a plausible case. I think that is a completely appropriate argument one that is absolutely possible. And that there is space actually for more stimulation to occur and that that stimulation can happen without doing anything super dangerous to the inflation rate. And finally, there is a Fourth Way that the public might interpret decision by the fed to stimulate the economy, and that is that the fed caved to political pressure and specifically political pressure from President Donald Trump. See the president has aggressively called for the fed to cut interest rates and stimulate the economy. Because of course, he wants his presidency associated with a super strong economy. But the fed is supposed to make decisions based only on. What is good for the economy not on? What is good for a politician or political party? And so traditionally the president does not comment that much on monetary policy. President Trump has broken with that tradition. And it means that the fed will have to convince the public that it is not being influenced by the president's words that it is still acting independently. How do you think you would have responded to it? If some kind of pressured like this had been coming from the White House while you're on the FOMC. Well, we would try very hard to to not respond to it. So basically the fed will try to tune out the president. But more importantly, it will need to convince the public that it has tuned out the president. So look, this is all still hypothetical, but if inflation remains low or even goes lower the fed eventually will have to decide whether or not it wants to stimulate the economy by lowering interest rates. The message coming from the fed if it does make that choice will have to be crystal clear because Sarah points out just lowering rates might. Not be enough. How the fed explains its decision will matter too because rates are not the only tool that the fed has for managing the economy. It's other tool is the language it uses and like any tool it can be used and it can be misused."