Stacey vs Cardiff: The Fed Cut Throwdown!
You're listening to N._P._R.. <music> hey everyone is stacey in Cardiff and this is indicated from planet money tomorrow on Wednesday the Federal Reserve the Fed only get excited I talked about it's very endearing. I love it when they do stuff in the Fed. Tomorrow is very likely to lower interest rates by at least one quarter of a percentage point fed ED share Jerome Powell and other members of the Fed have been signaling clearly that these lower rates are on the way and this moment is a big deal so the goal of lower interest rates is to give the economy a little help a little boost that is the point of lower interest rates they make it cheaper for people and companies to borrow money to take out loans and then they spend that money and all that spending helps the economy but this decision by the Fed is controversial because right now the US economy seems to be doing fine and the Fed helping the economy if it does not need help does bring some risks with it so in this episode Stacey Ni- are GonNa rhetorically throw it down. Yes we're GONNA argue you are about whether or not it actually is a good idea for the Fed to lower interest rates. Now we brought a boxing bell. We've got an announcer right now. I'm doing like mental jumping jacks to warm up yet. It's about to be <hes> skater. This message comes from N._P._R.. Sponsor K._p._M._G.. Revolutionize your enterprise with A._I.. K._p._M._G. can help you harness the power of A._I.. To unlock its potential and deliver growth more at read dot K._p._M._g.. M._G. Dot U._S. Slash N._p._R.. Support also comes from Microsoft snow. Leopards are very difficult to find researchers use use Microsoft to analyze thousands of remote camera images in minutes so they can find and study them more efficiently more at Microsoft dot com mm slash Ed should make that cut the Fed should lower interest rates and help the economy stacy is going to be arguing. The Fed should stay strong the Fed to leave interest rates exactly exactly where they are round one the maestro of the markets the Queen of commodities the ECON- dumb Stacey Vanik Smith and in this Khanna the yield curve and Verda bond market beserk alone without a wonkery call. Let's start this way Cardiff. Garcia the Fed needs to stay strong wrong and not cut interest rates because interest rates are exactly where they need to be right now and you know how I know this. I know this because the U._S. economy is doing just fine it. We just started its eleventh straight year without recession and more importantly it is creating plenty of jobs about one hundred and seventy thousand jobs every month which is a really healthy number for an economy that has been growing for so long. I hope you've got stronger punches than that stacy because I say the Fed needs to cut because even if the economy's growing at a decent pace now that growth is slowing down it was growing faster and creating more jobs last year plus there are storm clouds was on the horizon just like fed shared Jerome Powell said there were the trade wars are going to become a problem investment by U._S.. Businesses actually fell in the second quarter Sir because these businesses are worried about the impact of trade wars and because economic growth in the rest of the world is slowing down to other countries won't be able to buy as much stuff you've made in the U._S._A.. Are you wearing yourself out jumping at your own shadow. I'm winning. You're not winning on to Carter Garcia. You are ignoring the elephant in the room and that is the elephant in the room that is showing us that the U._S. economy is looking great and that is the centerpiece of the U._S.. Economy thank you very much consumer consumer spending. It is two thirds of the U._S.. Economy the biggest part of the giant chunk of the global economy. The rest of the economy always follows consumer spending thanks so the Fed does not need to help consumers with Ending might start to slow down because people don't keep making more money they might not keep spending more money are around three. I think you're you're forgetting something. Cardiff and that is that lowering interest rates is the way that the Federal Reserve fights a recession. The economy is not in recession and right now in case you had not noticed if you lower interest rates well. The economy is already growing. It is like wasting your main weapon. You will not have it when you need it. It's like shooting all of the arrows out during target practice and then having none left for the actual battle. It is like drinking five cups of coffee when you got nine hours of sleep. Why are you drinking all this coffee card because Stacey van Smith Yeah that is already worried that economic growth is weaker in future sure unless it cuts interest rates and slower economic growth would bring the economy closer to a recession anyways. Isn't it better for the Fed to us that firepower now and avoid the recession in the first place why risk it things are starting to heat up around four speaking of risk. You are ignoring another big risk. which is that lower? Interest rates can lead people and companies to borrow too much money and that just because lower interest rates make it cheaper to borrow money. You are more likely to charge that flat screen TVs your credit card. If the annual rate is really low but we all know what happens when people and companies borrow too much money member it happened ten years ago they can't pay it back and when that happens it hurts the financial system and the rest of the economy it can cause financial crises so the Fed should not encourage this behavior which is exactly what would happen if a lowered interest rates yeah. It's true that lower interest rates work by encouraging more borrowing but there is nothing wrong with borrowing money. There's only something wrong with irresponsibly borrowing too much money and making sure that doesn't happen. Weapon is a job for financial regulation. Not For Monetary Policy Monetary Policy which quick aside is just a fancy way of referring to the what the Fed does with interest rates. Monetary policy has to use the tools at its disposal to manage the economy in accordance with its main goals. Those goals are make sure that people people who want a job can get a job and to keep inflation stable. The stability of the financial system. I'm sorry is only a secondary goal yeah who cares about the stability. Billy the financial system okay excuse me for carrying more about workers and he's got are on the ropes this time round five stacey. There is another reason that the Fed should boost the economy only in the last couple of years have gained in the labor market really started going to workers in low wage industries. He's that's because his unemployment goes down. Companies have to offer more money and better working conditions to attract workers as we gotta keep the boom going so the society's most Volna real people can keep gaining more power and more pay. That's the definition of a tight labor market and we are not there yet so the Fed has gotta lower interest rates. Can you get us there. You know what really hurts the most vulnerable workers in this country inflation if the labor market keeps getting tighter and tighter there is a huge risk of inflation because you know it's great that companies are offering better deals to their workers and paying the more but if companies raised their wages too fast they will also start raising the price of the goods they itself fast to offset the higher wages they have to pay and then workers will ask for even more pay so that they can afford the more expensive stuff which leads to more inflation and that can devastate everyone in the economy especially the most vulnerable people and the Fed can lose control and we might be close to that point which is why the Fed should not lower interest interest rates. I am just not worried about inflation right now. So the Fed has a two percent annual inflation target. That's prices going up by two percent each year and it's thought to be a healthy healthy amount of inflation not so high the Fed loses control and not so low that the economy's weaker than it needs to be and for most of the past decade inflation has been below the feds target so if it goes up above the target for a while that's fine. It's just payback. The Fed has learned that the labor market can get stronger than it thought before we get to that inflationary point the relationship between unemployment and inflation has changed. Maybe maybe not economists will be debating this for a while. The Federal Reserve will make its call all one way or the other tomorrow but for now our debate is over listeners. You should send us an e. Mail tells you think one <hes> that is indicator at N._p._R.. Dot Org and let us know what you think. The Fed should do also this episode was produced by Rachel Tone edited by Paddy Hirsch fact check by