AYESHA RASCOE, HOST:
The Federal Reserve Board meets Tuesday. It's not usually something you'd wake the kids for, but this week's meeting comes as the Supreme Court weighs arguments over the legality of President Trump's attempt to fire Lisa Cook, a member of the Federal Reserve Board, and as the Justice Department is investigating Fed Chair Jerome Powell. The DOJ is looking into allegations of mismanagement of public funds as the Fed renovates its headquarters. Powell called that a pretext in an extraordinary statement two weeks ago today.
(SOUNDBITE OF ARCHIVED RECORDING)
JEROME POWELL: This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation.
RASCOE: Claudia Sahm is a former Federal Reserve economist, now the chief economist for New Century Advisors, and, you know, we assume she'll be very interested in Tuesday's meeting.
CLAUDIA SAHM: Absolutely. Always interested.
RASCOE: Yeah. So I got to ask you, what are you expecting?
SAHM: So the expectation is that the Fed holds its policy rate steady - after cutting three times last year, that they're going to want to get some more information about the economy before they make any further adjustments. We'll be really interested in how Powell explains that decision.
RASCOE: Well, we heard Powell push back. And this past week, the Supreme Court sounded skeptical of the Trump administration's case regarding Lisa Cook, whom it accuses of mortgage fraud. What are the odds that the storm has kind of passed regarding Trump and the Fed?
SAHM: The storm has not passed. And while the justices seem skeptical of how the White House was trying to remove Lisa Cook, there's no ruling. There's been no deescalation from the White House. The investigation of Powell is ongoing. Lisa Cook is still before the Supreme Court. So it's not - we're not out of the woods yet.
RASCOE: If Powell is not backing down and not, you know, lowering rates the way Trump wants him to, is your expectation that there could be more interference from the federal government with the Fed? More intimidation? More of a shakeup?
SAHM: I don't know. And frankly, that's a big problem. Until we're all secure in the fact that we're back to a place where the Federal Reserve - when they meet and decide on interest rates, they're guided by the economics and there's not pressure coming from the White House. And what's really unfortunate with all of this is it is a big distraction from what are tough decisions about what's happening in the economy, what should the Fed be doing from interest rates? We're not in a good place, and until we see some real signs of it getting better, I think we should be concerned.
RASCOE: Why haven't the markets responded with more alarm about this?
SAHM: Well, it's really hard for markets or for anyone to grapple with threats that we've never seen before. I think that's probably a lot of what we're seeing, is just uncertainty about where this could go. But at this point, I think we can be assured - and this will truly be on Fed Chair Powell this week to convince all of us - that the decisions at the Fed are still based on the economics, on the facts.
RASCOE: Well, President Trump has been pushing for the Fed to reduce interest rates, and that would make it cheaper to borrow money, possibly spur economic growth. Why wouldn't that be good for the economy at this moment?
SAHM: Inflation is still elevated. It's not nearly as high as it was two, three years ago, but it's still higher than it was before the pandemic. And the Fed is concerned about that, and they are dedicated. It is their job. It's their mission to make sure that inflation comes down further. The tool they have for that is interest rates. Now, at the same time, they want to make sure that people keep their jobs and wages are increasing so we don't - we want to avoid a recession. But it's this fine balancing act.
RASCOE: So what is the state of the economy right now? I mean, we keep hearing about warning signs, even one named after you called the Sahm rule that you and I talked about on this program, like, three years ago. And yet there hasn't been any recession since COVID. So what's going on?
SAHM: The unemployment rate has been rising gradually more than two years now - right? - which is pretty notable, adds up over time. But the problem hasn't been layoffs. The problem has been the hiring rate is very low. It's not a recessionary labor market. It's just one where it's hard. There's just not as much hiring, but at the same time, we look out, consumers are spending, businesses are investment (ph). The GDP numbers are really solid. So that's an unusual setup. Usually, if business have customers, they're also hiring employees, but that's not what's happening right now. And on top of all of that, some of the data that we would often rely on to get a picture of the economy, they've been distorted and disrupted from the government shutdown and also just less resources going into measuring the economy and the government.
RASCOE: That's Claudia Sahm, chief economist for New Century Advisors. Thank you so much for being with us.
SAHM: Thank you. Transcript provided by NPR, Copyright NPR.
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