1 00:00:02,466 --> 00:00:04,866 JUDY WOODRUFF: The Federal Reserve cut a key short-term interest rate today, after raising 2 00:00:04,866 --> 00:00:07,000 it as recently as December. 3 00:00:07,000 --> 00:00:09,066 It lowered the federal funds rate. 4 00:00:09,066 --> 00:00:12,600 - - that's the rate that banks charge each other for loans -- by a quarter-point. 5 00:00:12,600 --> 00:00:17,600 Unusually, the stock market fell, apparently disappointed that Chairman Jay Powell did 6 00:00:19,066 --> 00:00:22,833 not signal that this might be the first in a series of cuts. 7 00:00:22,833 --> 00:00:27,400 Also unusual, two Fed committee members voted against today's move. 8 00:00:27,400 --> 00:00:30,266 At a press conference, Powell played down the lack of consensus. 9 00:00:30,266 --> 00:00:33,800 JEROME POWELL, Federal Reserve Chairman: There is a range of views on the committee, and 10 00:00:33,800 --> 00:00:38,766 - - but the committee is unified, completely unified, on our dedication to making the best 11 00:00:40,966 --> 00:00:43,000 policy decisions we can make. 12 00:00:43,000 --> 00:00:46,233 And that means people have a responsibility to do their best thinking and to present that 13 00:00:46,233 --> 00:00:47,500 thinking. 14 00:00:47,500 --> 00:00:49,433 And I wouldn't have it any other way. 15 00:00:49,433 --> 00:00:51,533 In terms of the way forward, we are going to be data-dependent. 16 00:00:51,533 --> 00:00:56,400 We are going to be, as we always are, doing what we need to do, what we believe we need 17 00:00:59,533 --> 00:01:01,666 to, to support the economic expansion. 18 00:01:01,666 --> 00:01:06,666 JUDY WOODRUFF: Late this afternoon, President Trump also weighed in, tweeting that: "As 19 00:01:09,166 --> 00:01:12,466 usual, Powell let us down," that markets were looking for indications of a lengthy and aggressive 20 00:01:13,200 --> 00:01:15,200 rate-cutting cycle. 21 00:01:15,200 --> 00:01:18,200 Today's rate cut marks the first time the Fed has lowered interest rates in a little 22 00:01:18,200 --> 00:01:20,166 over 10 years. 23 00:01:20,166 --> 00:01:23,833 At that time, the U.S. economy was struggling to emerge from the great recession. 24 00:01:23,833 --> 00:01:28,833 Today, economic indicators are strong, unemployment is at a 50-year low, with the stock market 25 00:01:30,000 --> 00:01:32,066 recently hitting new highs. 26 00:01:32,066 --> 00:01:34,100 So why cut now? 27 00:01:34,100 --> 00:01:37,566 For answers to that and more, we once again turn to David Wessel, director of the Hutchins 28 00:01:37,566 --> 00:01:41,633 Center on Fiscal and Monetary Policy at the Brookings Institution. 29 00:01:41,633 --> 00:01:43,333 David, welcome back to the program. 30 00:01:43,333 --> 00:01:45,466 DAVID WESSEL, Brookings Institution: Good to be here. 31 00:01:45,466 --> 00:01:48,000 JUDY WOODRUFF: So, as we just mentioned, last time we looked, in December, the Fed was raising 32 00:01:48,000 --> 00:01:49,133 interest rates. 33 00:01:49,133 --> 00:01:50,300 Now they're lowering them. 34 00:01:50,300 --> 00:01:51,300 Why? 35 00:01:51,300 --> 00:01:52,300 DAVID WESSEL: Right. 36 00:01:52,300 --> 00:01:53,600 So, they gave three reasons. 37 00:01:53,600 --> 00:01:56,233 One is that they made a mistake in December. 38 00:01:56,233 --> 00:01:59,233 The economy isn't as strong as they had anticipated. 39 00:01:59,233 --> 00:02:02,166 Two, they're worried that inflation is too soft. 40 00:02:02,166 --> 00:02:07,166 They expected inflation to be moving towards their 2 percent target, and it hasn't moved 41 00:02:08,500 --> 00:02:10,033 there quite as effectively as they had hoped. 42 00:02:10,033 --> 00:02:11,033 JUDY WOODRUFF: That's prices going up. 43 00:02:11,033 --> 00:02:12,733 DAVID WESSEL: Prices going up. 44 00:02:12,733 --> 00:02:15,200 It's hard to believe, the Fed trying to get inflation going up. 45 00:02:15,200 --> 00:02:18,300 For old-timers like us, that seems like an impossible thing. 46 00:02:18,300 --> 00:02:21,066 Like, we're used to the Fed doing the opposite. 47 00:02:21,066 --> 00:02:25,100 And the third thing is that they're really worried about risk to the global economy, 48 00:02:25,100 --> 00:02:29,800 not so much the United States, but Chairman Powell mentioned China and Europe. 49 00:02:29,800 --> 00:02:34,800 And he also made clear -- and he said this several times -- that trade tensions, President 50 00:02:36,766 --> 00:02:40,333 Trump's trade war, is hurting the economy, largely because it's depressing business spirits 51 00:02:41,200 --> 00:02:43,200 and business investments. 52 00:02:43,200 --> 00:02:46,533 So, in a sense, they're saying, we need to cut rates now to protect the economy in part 53 00:02:48,433 --> 00:02:50,933 from the damage that President Trump's trade policies are doing for the outlook. 54 00:02:50,933 --> 00:02:53,933 JUDY WOODRUFF: So he's specifically pointing a finger at the president's trade policies? 55 00:02:53,933 --> 00:02:56,100 DAVID WESSEL: He didn't quite say it like I did, but pretty close. 56 00:02:56,100 --> 00:03:00,966 JUDY WOODRUFF: But cutting one-quarter of a point, it doesn't sound like a lot. 57 00:03:02,933 --> 00:03:05,433 But what effect is that going to have on the economy and on ordinary Americans? 58 00:03:05,433 --> 00:03:07,533 DAVID WESSEL: Well, it isn't a lot. 59 00:03:07,533 --> 00:03:11,300 It's a small move, meant to offset some of the bad things that are going on in the economy. 60 00:03:11,300 --> 00:03:13,333 The markets were anticipating this move. 61 00:03:13,333 --> 00:03:16,333 So, for instance, mortgage rates have come down quite a bit. 62 00:03:16,333 --> 00:03:19,033 Just a few months ago, mortgage rates were almost 5 percent. 63 00:03:19,033 --> 00:03:21,033 Now they're 3.7 percent. 64 00:03:21,033 --> 00:03:24,333 It will mean slightly lower rates on car loans, on some credit cards. 65 00:03:24,333 --> 00:03:28,933 But it also means that people who are -- have money in a money market fund or in the bank 66 00:03:28,933 --> 00:03:31,000 certificate of deposit will get less interest. 67 00:03:31,000 --> 00:03:33,433 And that's, of course, frustrating to savers. 68 00:03:33,433 --> 00:03:37,266 JUDY WOODRUFF: So President Trump being critical, because he says the Fed should have signaled 69 00:03:37,266 --> 00:03:40,033 that there are going to be more rate cuts to come. 70 00:03:40,033 --> 00:03:42,066 And the markets reacted to that. 71 00:03:42,066 --> 00:03:43,900 Why didn't the Fed say more about that? 72 00:03:43,900 --> 00:03:46,433 DAVID WESSEL: Well, I think you're right. 73 00:03:46,433 --> 00:03:50,233 The markets seemed to have reacted to Chairman Powell's press conference, in which he refused 74 00:03:51,400 --> 00:03:53,500 to say that this is a series of cuts. 75 00:03:53,500 --> 00:03:55,533 He was a little confusing. 76 00:03:55,533 --> 00:04:00,500 So I think that basically what the Fed is saying is, the economy is OK. 77 00:04:02,566 --> 00:04:05,733 We -- this is taking out some insurance, just a little bit of insurance, against a bad outcome. 78 00:04:07,733 --> 00:04:10,466 We will cut rates a lot if we think the economy is on the verge of the recession. 79 00:04:10,466 --> 00:04:12,033 We don't think it is. 80 00:04:12,033 --> 00:04:14,333 So this is not the first of a long series. 81 00:04:14,333 --> 00:04:17,433 The markets still expect at least one more rate cut this year. 82 00:04:17,433 --> 00:04:19,500 The president apparently wants more than that. 83 00:04:19,500 --> 00:04:23,833 JUDY WOODRUFF: But they -- but, for whatever reasons, as you just said, the Fed is not 84 00:04:23,833 --> 00:04:25,100 prepared to promise that. 85 00:04:25,100 --> 00:04:27,166 DAVID WESSEL: No. 86 00:04:27,166 --> 00:04:31,100 I mean, partly, it's because the markets and the analysts want more certainty, I think, 87 00:04:31,966 --> 00:04:34,100 than the Fed can ever provide. 88 00:04:34,100 --> 00:04:36,866 They don't really know -- and Chairman Powell talked about this -- how bad will trade tensions 89 00:04:36,866 --> 00:04:38,100 be for the economy? 90 00:04:38,100 --> 00:04:40,166 So they're trying to be cautious. 91 00:04:40,166 --> 00:04:44,633 And, secondly, we are -- unemployment is at a 50-year low, and the economy is OK. 92 00:04:46,633 --> 00:04:50,000 So the Fed doesn't believe it needs the really strong medicine of sharp rate cuts. 93 00:04:51,100 --> 00:04:53,233 The president apparently feels differently. 94 00:04:53,233 --> 00:04:54,966 JUDY WOODRUFF: Very quickly, David Wessel, another focus of the president seems to be 95 00:04:54,966 --> 00:04:56,700 on the strength of the U.S. dollar. 96 00:04:56,700 --> 00:04:58,733 How does all that play into it? 97 00:04:58,733 --> 00:05:01,300 DAVID WESSEL: The president worries a lot about the dollar, which has been strong, because 98 00:05:01,300 --> 00:05:04,533 it hurts our exports and makes trade deficits worse. 99 00:05:04,533 --> 00:05:06,600 And that's a big concern of his. 100 00:05:06,600 --> 00:05:10,933 The fact that other central banks around the world are cutting their interest rates means 101 00:05:10,933 --> 00:05:14,200 that their currencies will fall relative to the dollar. 102 00:05:14,200 --> 00:05:18,566 So one factor in the Fed's decision was, they knew that they had to cut rates now. 103 00:05:18,566 --> 00:05:20,500 Otherwise, the dollar might get too strong. 104 00:05:20,500 --> 00:05:22,100 And, apparently, they don't want that. 105 00:05:22,100 --> 00:05:23,600 And the president surely doesn't. 106 00:05:23,600 --> 00:05:26,833 JUDY WOODRUFF: Well, one more act in this drama that goes on. 107 00:05:26,833 --> 00:05:30,000 We will keep watching. 108 00:05:30,000 --> 00:05:31,000 DAVID WESSEL: Keeps me employed. 109 00:05:31,000 --> 00:05:32,233 (LAUGHTER) 110 00:05:32,233 --> 00:05:33,166 JUDY WOODRUFF: David Wessel, thank you. 111 00:05:33,166 --> 00:05:33,300 DAVID WESSEL: You're welcome.