Fed takes “wait and see” approach with tariffs

Jay Powell, this economy, and where things might go from here, from American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal.
It is Wednesday today, the 19th of March. Good as always to have you along, everybody.
We're going to start with the news, obviously, on this second Fed day of 2025. No change in interest rates from the central bank, not that anybody thought there was going to be.
More interesting and more important is how Chair Powell and the gang are thinking about things. As we said on this program a couple of days ago, how they are making sense of the vibes versus the verifiable data.
We do see pretty solid, hard data still. That is the main takeaway from Powell's press conference today, that the economy is, so far, holding.
So growth looks like it's maybe moderating a bit. GDP, we talked about that slowing just a bit in the fourth quarter.

Consumer spending moderating a bit, but still at a solid pace.

Consumers, repeat after me, because you have heard it oh so many times, 70 percent of this whole economy.

Unemployment's 4.1 percent.

Near historic lows.

Inflation has started to move up now, we think, partly in response to tariffs. And there may be a delay in further progress over the course of this year.
Delay in further progress. Is Fed speak for inflation's a bit stickier than we want it to be? So that's the hard data.
Overall, it's a solid picture. The soft data, on the other hand.
The survey data, both household and businesses, show significant rise in uncertainty and significant concerns about downside risks. Survey data literally just asking people and businesses how they're feeling.
So how do we think about that? And that is the question. It is indeed.
The relationship between survey data and actual economic activity hasn't been very tight. Which is to say, there have been plenty of times where people are saying very downs, downbeat things about the economy and then going out and buying a new car.
But we don't know that that will be the case here. And that gets us back to the vibes versus verifiable data dilemma.
We will be watching very carefully for signs of weakness in the real data. Of course we will.
But, you know, given where we are, we think our policy is in a good place to react to what comes. And we think that the right thing to do is to wait here for greater clarity about what the economy is doing.
How that waiting might play out in the economy coming up in the second half of the program. Lastly, though, from Chair Powell's presser today, this item, for those of you who might have, well, I don't know, maybe made a side bet with a colleague that there was no way in the world Jay Powell was going to let the word transitory pass his lips again after what happened during the pandemic.
Yeah. It can be the case that it's appropriate sometimes to look through inflation if it's going to go away quickly without action by us if it's transitory.
And that can be the case in the case of tariff inflation. Transitory.
Three times. He said it three times.

I mean, I get it. Tariff inflation might actually

be transitory,

but gutsy move. I'm saying it out

loud again. I was on the losing side of that bet,

by the way. Wall Street

today, all sunshine and light.

We will have the details when we do the

numbers. President Trump said last night that he has fired two members of the Federal Trade Commission, two Democratic members of the Federal Trade Commission, it should be said.
Fired, there is in air quotes, because there is 90 years worth of Supreme Court precedent that says a president, any president, can't fire commissioners of independent federal agencies just because he feels like it. With the caveat that this is a program not about the law, but about business and the economy.
It does seem that the Trump administration has brought us to the crossroads. So we have called Leah Littman.
She teaches constitutional law at the University of Michigan. She co-hosts the podcast, Strict Scrutiny.
And she's got a book coming out in May about the Supreme Court. It is called Lawless.
Professor, thanks for coming on the program. Thanks for having me.
Could you give us the layman's version, please, of the case at issue here, Humphreys Executor? Humphreys Executor is the famous case that established the constitutionality of independent agencies. Independent agencies just refer to agencies that are led by people who cannot be fired at will by the president.
Basically, they can't be fired if the president disagrees with them about policy priorities and how to implement federal law. Okay.
So the reason, obviously, that I'm interested in Humphrey's executors, executor, only one of them, is because of what it might mean for the Federal Reserve. And here I should say that you and I are buddies on the socials, And we had an exchange, I don't know, like a month, two months ago, about what Humphrey's executor might mean for the Fed.
And you said, you know, the Supreme Court could carve out a space for the Federal Reserve if they wanted to. And that leads me to believe that While, as you lay out in this book, the Supreme Court might not understand this society at the moment, might not understand the politics of this moment.
They are very finely attuned to the economic challenges of this moment. Yes, they have investments.
They have billionaire friends. I don't think any of them want a global recession.
And I think endangering the independence of the Federal Reserve Board would do just that. Imagine if the president could threaten or jawbone or pressure the Federal Reserve Board to adjust interest rates or other kinds of monetary policy in order to be politically convenient.
I mean, over the last, I don't know, however many weeks, the stock market has lost something like $3 billion, you know, a billion dollars a week because of the president's economic erratic behavior. And if he could do that with the Federal Reserve Board, that would be catastrophic.
Yeah, I think it's actually trillions of dollars actually lost. Right.
You know, what's a couple of billion between friends? The thinking about this economy and the law has been that, you know, the infrastructure that holds up this economy is the free market, right? The free market rules. I would suggest, and I have on this program, suggested that actually it's the rule of law, right? And that's what establishes, for example, private property rights.

And I wonder if once Wall Street figures out that that maybe private property rights are at risk here, it would kind of be Katie bar the door. And I guess I mean, what do you think? I am hoping there will be some concerted pressure to force the administration and the Supreme Court to recognize the importance of independent monetary policy.
I mean, if you think about, for example, what the federal government is doing when it is defunding federal agencies, basically canceling contracts and grants that the federal government has made, they are basically reneging on the federal government's word in honoring contracts. And that is, as you say, a threat to the rule of law.
And that also very much endangers the economic stability of the country if you can't count on the federal government to basically pay its debts and pay what it said it's going to. Well, look, let me get it down to brass tacks.
You're a professor of law, obviously, but you're also a consumer in this society. As you look at what's happening with the Trump administration deliberately taking apart this economy and challenging, in the very kindest sense, the rule of law, like in your spare time, what do you think about that? It is pretty terrifying, I have to say.
You know, the idea that the president and the administration can, for example, just summarily deport people without due process of law or any judicial review is, I think, pretty definitionally authoritarian. The idea that a president can just refuse to spend money that Congress has appropriated is upending the constitutional system and I think antithetical to our constitutional democracy because it eliminates a key check on the president's power and the executive branch's authority, which is Congress's spending power.
It is, in many respects, unprecedented, just the systematic disregard for the rule of law. And I think I would be a fool and naive if that didn't worry me.
People who listen to you on strict scrutiny will know that you and your co-hosts have some issues, shall we say, with the Supreme Court. Not issues in general.
We don't have issues. We have issues with the court.
That's right. And I guess, are you at all surprised at the turn that the law has taken, and since this is a program on business and the economy, how that might affect the economic future of literally everybody living in this economy? I think I am not surprised with the quick pace at which the Supreme Court has changed the law in pretty radical ways.
Now, I don't consider myself naive or an optimist, but I do hold out some hope as we were talking about that one constraint on what the court might do is the prospect of a catastrophic economic recession.

But that is one of the few possible checks that remains right now in a world where the political branches, the Democratic Party have shown little appetite for challenging the authority of the court, even when the court is behaving in pretty bad ways. Not to be all doom and gloom on the way out here, but that's a thin read.
It is a thin read. And one other reason for optimism, just because I don't love leaving things on notes of doom and gloom, is I have taken heart at seeing some of the protests against, for example, Tesla takedown protests.
I think the evidence suggests that's working and that one big pressure point on the administration and Elon Musk is their pocketbooks.

And that's part of why I continue to hold out hope that the administration, the Supreme Court, they don't want an economic recession. I am hoping that they will be convinced that what they are doing is pushing us too far in that direction.
And in any event, the Supreme Court won't take the next step by undoing the independence of the Fed.

Leah Lippman is a professor of law at the University of Michigan. She hosts a podcast,

co-hosts a podcast called Strict Scrutiny. She's also, I guess, in her spare time written a book.

It's called Lawless, How the Supreme Court Runs on Conservative Grievance,

Fringe Theories, and Bad Vibes. Leah, thanks so much.
I appreciate your time.

Thanks for having me. The whole reason the bond market exists is because companies and governments need to borrow money.
You buy a corporate bond or a government bond lending the money in effect, they pay you back with interest. So far, so good, except, of course, it is not quite so simple.
Because there is, in fact, a little competition between corporate and government bonds, which are both chasing an extremely large but not unlimited pool of money. And while government bond yields, the interest rate that the government has to pay, have been going down, corporate bond yields have been going up, thus making it more expensive for them to borrow.
Marketplace's Sabri Beneshore explains what all that means. Out of all the different nooks and crannies in this whole wide economy where you could put your money, one of the safest places is in a government bond.
Because the U.S. Treasury, in theory, will always pay its bills.
Eric Jacobson is a senior principal with Morningstar. Corporations also sell bonds, corporate bonds, to raise money.
But they don't, in theory, always pay their bills. Companies come and go.
Companies default. You can't quite trust them the same.
The bond market uses the U.S. Treasury market as a baseline.
Everything else in the bond market pretty much is compared to the Treasury bond. So whatever interest rate the U.S.
Treasury is offering people to invest in the government, McDonald's or John Deere or Walmart have to beat it to convince anyone to lend them money. So a bond trader might say, you know, treasuries plus one percent.
And the shakier the company, the more interest it has to promise compared to the government. And that difference is called a spread.
And that gives you an idea of the market's estimation of how much more credit risk there is. Which brings us to now.
The spreads are the widest they have been in six months, especially for riskier companies. The level of general shakiness has just increased a tad.
There's a lot more uncertainty that the market is having to confront. David Hamilton is head of research for asset management at Moody's.
Not the least of which are the uncertainty around the impact of tariffs and trade wars breaking out all over the place. Bottom line, more vulnerable companies, medium-sized companies, companies with floating interest rates, they are having to pay more interest on their debt.
That means more stress for already stressed companies. For these middle-sized and smaller-sized borrowers, economic growth has been positive, but the burden of the cost of their debt has sort of swamped that positive effect.
The good news is that the moves in corporate bond spread so far have been small by historical standards, and many larger companies are actually prepared. Leslie Falconeo is head of strategic taxable fixed income at UBS.
Balance sheets are in a very good spot. You know, they've been cautious.

You know, the word recession has come back into the picture.

It's not our view that we go into a U.S. recession,

but we do think growth slows.

The odds of recession, though, did get bumped up about 30%.

In New York, I'm Sabri Beneshore for Marketplace. Coming up.
When I say I get plans from our local suppliers, I mean Canada. Doing business across the border.
But first, let's do the numbers. Dow Industrial is up 383 today, 9 tenths percent, finished at 41,964.

The Nasdaq added 246 points, 1.4 percent, 17,750. S&P 500 improved 60 points, 1 percent, 56 and 75.
General Mills, manufacturer of everything from Cheerios to Totina's Pizza Rolls, gave its quarterly earnings today. Results more salty than sweet.
General Mills soured 2 percent. And competitoranova, formerly known as Kellogg's.
Also, how did I miss that name change? They were flat. Bonds rose yield on the 10-year.
T-note down. Talking about corporate and government bond spreads, 4.25% on the 10-year.
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I'm Kai Rizdahl. This economy ain't the one the Federal Reserve was dealing with even a month or two ago.
And while Chair Powell did say today that inflation expectations are well anchored and that the central bank is firmly in wait and see mode with the Trump tariffs, the smart money is on the Fed just leaving interest rates where they are, maybe for a while.

Which then gets us to this.

What are mostly static interest rates going to mean for what is going to happen in this economy?

Marketplace's Kristen Schwab takes it from there.

The future of interest rates feels fuzzy because the future of the economy feels fuzzy. David Wilcox, a former staff member of the Federal Reserve Board, says all the fuzziness may stick around for a while.
My own guess is that we won't get clarity on the direction of the economy before the middle of the year, I think the earliest we could possibly see another interest rate move is in June.

Or, he says, more likely towards the end of the year.

By then, tariffs' effects on inflation may be clearer.

Trade policy itself may be clearer.

Regardless, what's clear to Wilcox is right now...

We're not going back to the situation that we had immediately pre-COVID. The situation being around a decade of low interest rates.
Problem is, that period of affordable borrowing makes today's federal funds rate feel sky high, even though it's currently lower than the historical average. Linda Hooks is an economist at Washington and Lee University.
I would anticipate that consumers and businesses will be stuck in that mode for the near future. That mode or mindset affects how businesses and consumers spend.
Businesses are less likely to get financing that they need to expand their business or invest in new technology or train employees. Consumers might put off big purchases, too, like buying a house.
Many would-be buyers have been holding their breath for lower mortgage rates. Laura Veldkamp, an economist at Columbia University, says if there's a clear signal to buyers that interest rates won't budge...
This could convince them to stop waiting. Which could jumpstart the housing market again, though it would likely be a housing market that looks different.
It may be that we have to reset expectations for what a normal house looks like. Something smaller with more basic finishes.
In other words, homebuyers might need to compromise. I'm Kristen Schwab for Marketplace.
We got some inflation data of the less frequently commented upon variety today. Not the consumer price index, not the Fed's go-to personal consumption expenditures, but import and export prices.
Higher energy costs sent import prices higher in February. Export prices were up as well, driven mostly by agriculture, corn and soybeans, meat, too.

Marketplace's Justin Ho has more on that.

Part of what's going on has to do with demand, says Glenn Tonzer, an agricultural economics professor at Kansas State University.

Each month I put out something called the Export Demand Index.

And that particular index has been increasing basically throughout calendar year 23 and 24. Tanzer says that was mostly thanks to a decent global economy.
But these days, he says the uncertainty around tariffs has also been pushing up demand, especially for American beef, pork and chicken. If you think we're moving towards a world where there's going to be less trade, then yes, it makes sense to kind of proactively buy some of those, get your hands on those items.
But along with demand, supply has been pushing up prices too. Back in January, the Department of Agriculture reported that the fall harvest last year wasn't as big as anticipated.
That was the prompting reason why corn and soybean prices then raced higher during January and into early February. That's Naomi Bloom, senior market advisor with Total Farm Marketing.
She says higher export prices can be welcome news, especially for corn growers. There's not a lot of places that the world can get corn from.
It's the United States. We grow about a third of the world's corn.
But Bloom says American soybean farmers have a lot of competition from Brazil and Argentina. And the concern is that if soybean prices get too high, buyers will look elsewhere, especially as the trade war continues.
The risk going forward would be, do we lose export demand because of the trade and tariff issues potentially coming? That means a lot of farmers wouldn't benefit from today's higher prices, says Alex Schaefer, a professor at Oklahoma State University. We have to make decisions today about how many animals we're raising, how much meat we're going to produce in six months based on what we think prices are going to be tomorrow.
And if tariffs cause demand to fall and then prices to drop, Schaefer says farmers are going to scale back. I'm Justin Howe for Marketplace.

We ended yesterday with the observation that the number of people coming into the United States from Canada has dropped to COVID-era lows.

The $760 billion worth of goods and services traded between the two countries last year?

Ain't nothing to be sneezed at either, especially for towns and cities close to the border.

Johanna Dominguez runs a plant store in Buffalo, New York.

We first talked to her a couple of years ago.

She sent us an update.

Buffalo is, I believe, the second largest border town to Canada, right after Detroit. So when I say I get plants from our local suppliers, I mean Canada.
We get a shipment probably about once a week from one of our Canada growers, if not two shipments from different Canada growers.

So the tariff war has been very stressful trying to figure out if it's actually happening or if it's not happening, if we're affected.

Some of our growers have been delayed at the border and weren't able to cross and had to postpone the shipment to come the next day.

And it's just been a whole crazy event. Each grower sends out a list once a week with their availability.
And usually in those lists, they'll send an update on the tariffs and whether or not they're taking place. Only one of the growers has an actual plan if the tariffs go into place and their plan is to split it.
So they're going to only make us pay 12.5% and then they're going to eat 12.5% of the profit. The other growers have all been, oh, let's wait and see what happens.
We haven't raised prices at all since we opened. So we opened in 2020 and our prices have stayed the same.
And if not, a lot of them have been lowered because there's more supply of plants after the whole COVID craze. So we would probably have to raise prices for the first you know, the first time ever to in order to be able to cover those costs.

I try not to get too freaked out each time a new announcement comes out because it seems to be like one minute. Oh, he's implementing them next minute.
He's not. So it's just it's stressful.
It's a mess.

I'm trying not to invest too much emotionally until there's something concrete.

Johanna Dominguez, owner of Put a Plant on It in Buffalo, New York.

You might have heard some birds in the background there.

It's a small flock of rescue birds Johanna has.

They did have an escapee this week, so if you see an Indian ring-nakeed parakeet flying around Buffalo, her name is Blueberry. This final note on the way out today, one more item from Chair Powell.
Also, it's a footnote to the interview with Professor Littman earlier in the show about the law, this economy and Humphrey's executor.

Hi, thank you, Chris Rugebord, Associated Press.

As you know, I guess last night, the President Trump fired two members of the Federal Trade Commission, an independent agency.

And this could cause the kind of legal fight about the administration's power to fire independent people. If those firings stand, is that a threat to the Fed's independence? Could he do the same thing to the Fed board? So I think I did answer that question in this very room some time ago.
And I have no desire to change that answer and have nothing new for you on that today. Powell's answer last time, and this is verbatim because it's important, what he said was not permitted under the law.

Our media production team includes Brian Allison, Jake Cherry, Justin Dooler, Drew Jostant,

Gary O'Keefe, Charlton Thorpe, Juan Calestrato, and Becca Weinman. Jeff Peters is the manager

of media production, and I'm Kai Rizdahl. We will see you tomorrow, everybody.
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