Marketplace Podcast Episode Summary Title: Fed Takes “Wait and See” Approach with Tariffs
Host: Kai Ryssdal
Release Date: March 19, 2025

I. Introduction

In this episode of Marketplace, host Kai Ryssdal delves into the Federal Reserve's current monetary policy stance amidst ongoing tariff discussions, explores the legal ramifications of recent political moves affecting independent agencies, examines the dynamics of the bond market, and analyzes the broader economic implications of these developments. The episode features insightful interviews with experts, including Professor Leah Littman from the University of Michigan and Senior Principal Eric Jacobson from Morningstar.

II. Federal Reserve's "Wait and See" Approach with Tariffs

A. Chair Powell's Press Conference Highlights

The episode opens with Kai Ryssdal discussing the Federal Reserve's latest press conference, where Chair Jay Powell emphasized the central bank's decision to maintain current interest rates.

• Powell on Economic Data (00:25-02:05):

  "We do see pretty solid hard data still." (00:25)

  Powell acknowledged that while economic growth is moderating slightly, consumer spending remains robust. However, he noted a concerning rise in inflation, partly attributed to tariffs, indicating a potential delay in further economic progress.

• Vibes vs. Verifiable Data Dilemma (02:08-03:10):

  "The survey data, both household and businesses, show significant rise in uncertainty and significant concerns about downside risks." (02:11)

  Powell highlighted the disconnect between hard economic data and softer survey data, stressing the importance of monitoring real indicators to guide policy decisions.

B. Implications of Powell's Statements

Powell's repeated use of the term "transitory" when referring to inflation signals the Fed's cautious optimism that current inflationary pressures will subside without aggressive intervention.

• Powell on Transitory Inflation (03:36-03:49):

  "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." (03:36)

Ryssdal interprets Powell's stance as an indication that the Fed is prepared to wait for clearer economic signals before adjusting interest rates, balancing between combating inflation and supporting economic growth.

III. Impact of Tariffs on Inflation and the Economy

The discussion shifts to the broader economic impact of tariffs, with particular focus on how they contribute to inflationary pressures. Powell indicates that tariffs have made inflation "a bit stickier than we want it to be" (01:58), suggesting that while some inflationary effects may be temporary, others could persist, influencing the Fed's policy trajectory.

IV. Legal Challenges to Independent Federal Agencies

A. President Trump's Firing of FTC Members

A significant portion of the episode addresses President Trump's controversial decision to fire two Democratic members of the Federal Trade Commission (FTC), an independent federal agency.

B. Interview with Professor Leah Littman on Implications

Kai Ryssdal interviews Professor Leah Littman, a constitutional law expert from the University of Michigan, to unpack the legal and economic ramifications of these actions.

• Understanding Humphreys Executor Doctrine (05:20-05:38):

  "Humphrey's executor is the famous case that established the constitutionality of independent agencies." (05:20)

  Littman explains the Humphreys Executor doctrine, which protects the independence of federal agencies by restricting the President's ability to remove commissioners at will.

• Threat to the Federal Reserve's Independence (06:26-07:02):

  "Imagine if the President could... pressure the Federal Reserve Board to adjust interest rates... it would be catastrophic." (06:26)

  She underscores the potential dangers of undermining the Fed's independence, highlighting the risk of political interference in monetary policy decisions, which could destabilize the economy.

• Legal and Economic Concerns (08:54-10:59):

  "The idea that a president can just summarily deport people without due process... is pretty definitionally authoritarian." (08:54)

  Littman expresses deep concern over the administration's actions, viewing them as authoritarian moves that threaten the rule of law and economic stability.

V. The Bond Market: Corporate vs. Government Bonds

A. Overview of Bond Yields and Spreads

The episode transitions to an analysis of the bond market, contrasting corporate and government bonds.

• Eric Jacobson on Bond Safety and Spreads (13:10-15:37):

  "The spreads are the widest they have been in six months." (14:00)

  Jacobson explains that wider spreads indicate increased perceived risk in corporate bonds compared to government bonds, driven by market uncertainties such as tariffs and economic slowdowns.

• Impact on Corporates and Economic Stability:

  Higher corporate bond yields make borrowing more expensive for companies, potentially leading to reduced investment and financial stress for mid-sized and smaller firms. However, larger companies with strong balance sheets remain more resilient.

B. Market Sentiment and Recession Risks

Jacobson and other experts discuss the rising odds of a recession, currently estimated at around 30% in New York (15:17), attributing this to the tightening bond spreads and economic uncertainties.

VI. Future of Interest Rates and Economic Predictions

A. Insights from David Wilcox

David Wilcox, a former Federal Reserve Board staff member, provides his perspective on the unclear future of interest rates and the broader economy.

• Uncertainty on Rate Movements (17:41-18:07):

  "The future of interest rates feels fuzzy because the future of the economy feels fuzzy." (17:41)

  Wilcox anticipates that clarity on interest rate adjustments may not emerge until mid to late 2025, contingent on the evolving impact of tariffs and trade policies.

B. Market Mindset and Consumer Behavior

Economist Linda Hooks and Laura Veldkamp discuss how prolonged higher interest rates could dampen business expansion and consumer purchases, particularly in the housing market.

• Consumer and Business Sentiment (18:43-19:02):

  "Consumers might put off big purchases, too, like buying a house." (19:02)

  The sustained higher borrowing costs may lead to reduced investments in business and hesitancy among consumers to make significant financial commitments.

VII. Import and Export Prices: Agricultural Sector

A. Impact of Tariffs on Agriculture

The episode explores the effects of tariffs on import and export prices, particularly within the agricultural sector.

• Higher Export Prices (20:10-21:32):

  "Higher export prices can be welcome news, especially for corn growers." (21:04)

  Agricultural experts like Glenn Tonser and Naomi Blohm discuss how tariffs have driven up export prices for commodities like corn and soybeans due to increased global demand and supply constraints.

• Risks of Sustained Tariffs (21:40-21:59):

  "If tariffs cause demand to fall and then prices to drop, farmers are going to scale back." (21:48)

  The uncertainty surrounding tariffs poses risks to sustained demand, potentially leading to reduced production and financial strain for farmers if export markets decline.

VIII. Cross-Border Trade Between US and Canada

A. Story of Local Business Owner Johanna Dominguez

The narrative shifts to the personal impact of tariffs on cross-border trade, featuring Johanna Dominguez, owner of a plant store in Buffalo, New York.

• Challenges Faced Due to Tariffs (22:14-24:49):

  "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." (22:25)

  Dominguez describes the logistical and financial challenges posed by tariffs, including delayed shipments and the difficult decision to potentially raise prices for the first time since opening her business.

IX. Final Thoughts on Federal Regulation and the Fed's Independence

A. Reinforcement of Fed's Independence

In the concluding segments, Ryssdal revisits the issue of the Federal Reserve's independence in light of recent political actions.

• Powell's Stance on Agency Independence (25:29-26:00):

  "I no desire to change that answer and have nothing new for you on that today." (25:50)

  Powell reaffirms the Fed's commitment to maintaining its independence, dismissing concerns that recent political maneuvers might affect its autonomy.

X. Conclusion

Kai Ryssdal wraps up the episode by emphasizing the interconnectedness of monetary policy, legal frameworks, and economic stability. The Marketplace team underscores the importance of understanding these dynamics to navigate the current economic landscape effectively.

Notable Quotes with Timestamps:

• Jay Powell on Economic Data: "We do see pretty solid hard data still." (00:25)
• Professor Leah Littman on Humphreys Executor: "Humphrey's executor is the famous case that established the constitutionality of independent agencies." (05:20)
• Eric Jacobson on Bond Spreads: "The spreads are the widest they have been in six months." (14:00)
• David Wilcox on Interest Rates: "The future of interest rates feels fuzzy because the future of the economy feels fuzzy." (17:41)
• Johanna Dominguez on Tariff Impact: "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." (22:25)

This comprehensive summary encapsulates the key discussions and insights from the Marketplace episode, providing listeners with a clear understanding of the Federal Reserve's current strategies, the legal challenges facing independent agencies, the state of the bond market, and the broader economic implications of ongoing tariff policies.