Marketplace - Powell’s value-added messaging

Episode Date: September 18, 2024

Federal Reserve policymakers met this week and announced they’re cutting interest rates by half a percentage point. That’s meant to buoy the economy, but getting the public to understand why rates have been high, and why now’s the time to cut, is tricky. In this episode, experts weigh in on Chair Jerome Powell’s communication prowess. Plus, Gen Zers feel the pain of a tight job market combined with high prices, and we travel back in time to a Fed rate cut in 2019.

Hi, I'm Kyle Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today though, there's another threat out there, climate change. This could be the warmest year on record. Climate change is here.

Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to how we survive wherever you get your podcasts.

It's been 1,647 days. If you're counting, money is finally getting cheaper. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Wednesday, today, the 18th of September. Good as always to have you along, everybody. A lot has happened in monetary policy in those 1,647 days. So let's catch you up a little bit.

Previously on Federal Open Market Committee press conferences. Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices. In 2020, coronavirus disrupted the economy and the Fed slashed interest rates to zero. My colleagues and I took this action to help the U.S. economy keep strong. A year later, prices started rising really fast. And the Fed had this response.

As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal. But then... Inflation is much too high. Then came interest rate increases and a wait-and-see. Two years after they started raising interest rates... The labor market has cooled. So the Fed's under pressure to bring interest rates back down. I would not like to see material further cooling in the labor market.

And, oh yeah, there's something else on everybody's minds. Anything that we do before, during, or after the election will be based on the data, the outlook, and the balance of risks, and not on anything else. And that's what you missed on... FOMC. In a way, the J-PAL of today wasn't all that different from the J-PAL you just heard snippets of from the past four years. We're gonna be making decisions meeting by meeting based on the incoming data, the evolving outlook, the balance of risks. That's Powell of today, data meeting by meeting, same same, right? Right. But,

couple interesting things. Number one, did you perhaps wait too long, Mr. Chairman? I would say we don't think we're behind. We do not think we're behind. We think this is timely. But I think you can take this as a sign of our commitment not to get behind. Okay. A strong move. Powell called it all day. Are you worried perhaps, sir, about the labor market?

The labor market is actually in a solid condition. Our intention with our policy move today is to keep it there. You can say that about the whole economy. The U.S. economy is in good shape. It's growing at a solid pace. Inflation is coming down. The labor market is in a strong pace. We want to keep it there.

All righty then. A couple of quick data points to send us into the rest of the program. Consensus on the Federal Open Market Committee is that unemployment is going to rise to 4.4% by the end of this year and that they are going to cut interest rates two more times. Size of those cuts, of course, TBD. J.C. Bolden, Maria Hollenhorst, by the way, on your glee recap right there. Wall Street on this Fed Day. Traders were pretty happy with that rate cut until they weren't. We'll have the details when we do the numbers.

Hi, I'm April Hemas. I'm a soybean and corn farmer from North Central Iowa. Well, a rate cut means I have to pay less interest back to the bank. Period. End of story. A lot of farmers borrow a lot of money every year to put a crop in. Like, for example, a million dollars a year, many of us borrow that much. You know, any change is going to be huge for us. April and a bunch more of our regulars weighing in on interest rates throughout the program

today. To be clear though, inflation isn't dead until it's completely dead. So the Fed's not done yet. But the fact is, those rising prices and everything the Fed has done to tame them are going to leave a mark on this economy, perhaps especially on those who are just starting their financial lives. We had Marketplace's Kristen Schwab talk to some Gen Z-ers to find out what they think of this economy and how they are living in it.

When Nitin Werasinga was growing up, his high school teachers encouraged him to pursue tech. Technology is like the future. Everyone wants a computer scientist in the future and you won't have to worry about having a job. Except that's all he's worried about. Whereas Singa is 25, lives with his parents near Detroit and has a master's in computer science.

He's been job hunting for a year now. He even has a spreadsheet. At this point, it's more than 600 applications. And this spreadsheet, this is Whereas Singa's economy. He's not so focused on the price of eggs or his yet to exist 401k. He needs a job. I hear a lot of things about like the economy is supposed to be good. Being unemployed just

feels like really bad. Not having a certainty about the future. Uncertainty is the theme for a lot of young people. Corey C. Miller at Wright State University studies Gen Z, or people born between 1995 and 2010. This generation is often called the recession babies. Some weren't even born. My daughter was actually born in 2009. So it's not like they remember the recession. But what they do experience and have experienced was sort of a tightening of the belt. They saw their parents lose jobs, maybe downsize their homes. And C. Miller says, everyone told them, don't worry, life-changing economic events don't happen that often.

And then COVID comes along. And along with it, inflation. Seemiller says this lifetime of unpredictability has made Gen Zers risk averse. They have a scarcity mindset like the GI generation, people who came of age during the Great Depression. What happens between ages 14 and 24 in our lives tend to impact us in ways that we carry with us throughout our lifetimes more so than events that happen at other stages of our lives. The Gen Z-ers I talked to, they can't think too far ahead.

At this point, my main goal is to get to something that will actually allow me to progress. Claire O'Brakta is 23 and lives in Baltimore. She works at a planetarium and an escape room, both for $15 an hour. She wants one job that pays more. It's really difficult right now. I feel like it's expensive to live and hard to get a job. She says most of her friends are in the same boat. I'm Kristin Schwab for Marketplace. I'm Kristen Schwab for Marketplace. My name is Kalina Bruce and I am the CEO of Noorlux Candlebar in Seattle, Washington.

It's been a long time coming for us to actually see interest rates be cut. However, I feel that there's so much uncertainty with all of the different variables around the economy in general that it's hard to get super excited about what the interest rate cuts will shopping in the next year. You might fairly say that the mortgage market knew what was going to happen today long before anybody else did. Mortgage rates have been falling pretty steadily for months now, banking obviously on this afternoon's Fed rate cut. So those monthly nuts for homeowners are going to be getting at least a little bit cheaper, if not exactly cheap.

We also learned today we're building more houses in this economy. New home construction picked up last month, the fastest pace since April. Same data point tomorrow for existing homes. The vast majority of houses bought and sold in this country are listed on what's called a Multiple Listing Service, MLS, regional databases that real estate agents use to share information about properties for sale. They've been in the news a lot lately after that big legal settlement over realtor

commissions. You might remember that. But what is an MLS and how does it work? Marketplace's Amy Scott has our explainer. The concept of a multiple listing service where competing brokers cooperate to share information dates back to the late 19th century. The first MLS that we know of was developed in 1885 in San Diego. Frederick Heller is director of the Library and Archives at the National Association of Realtors. He says every day, twice a day, the San Diego Real Estate Board would provide updated listings

to all its members. I believe what they did is they had runners go throughout the city to the different real estate brokerages and distribute them that way. Cleveland and Chicago adopted similar systems. Back then, Heller says anyone could declare themselves a real estate broker. There were no education requirements or state licensing laws. So the multiple listings sort of gave real estate brokers a way to exchange information

with people that they trusted. And it was a way to get the most up-to-date information about properties that were for sale. It was also a way to gatekeep. As late as the 1960s, many real estate boards explicitly excluded black, Jewish, and women brokers from joining their boards and therefore accessing the MLSs. In the 1920s, the National Association of Real Estate Boards, the precursor to today's National Association of Realtors, pushed for wider adoption of the services, and they exploded in the post-war housing boom of the 1950s. Sam DeBoord is CEO of the nonprofit Real Estate Standards Organization.

He says listings were printed on notecards, then compiled in big books. You had to bring your clients into the office, pick up the book, go through the pages. Of course, some of this would be outdated. Updated books came out once or twice a month. I don't know if you've seen the movie The Jerk, but when he gets really excited about the new phone books coming in. The new phone book's here!

The new phone book's here! Well, I wish I could... Then there's that level of excitement in the MLS offices about the new listing books coming in. Things are going to start happening to me now. Saul Klein felt that way when he first saw an MLS book in the mid 1970s, when a friend took him out to look at real estate in San Diego.

It was an amazing thing to me because it had all these properties. It was all black and white, one single picture, but it had bedrooms, baths, square footage. It was just like fascinating. Klein got his real estate license and went to work. The technology evolved. In the late 1970s, computer terminals arrived in his brokerage office. That was back when you had phone couplers and you dialed the number, you'd listen for the tone, you'd stick the phone on the back of the computer.

You had like dot matrix printers. The internet, of course, changed everything. In the mid nineties, Klein was part of the team that created realtor.com, bringing listings based on MLS data to the public, much to the dismay of many in his industry. The value proposition of a realtor was that you knew what was for sale and nobody else knew what was for sale. Brokers didn't want to give this access away. The industry adapted. Today, you and I can look up almost any home for sale on Zillow, Redfin, or homes.com, all fed by data from MLSs.

Klein is now CEO of the San Diego Multiple Listing Service, where it all started, one of more than 500 in the country. Most are owned by local realtor associations operating under rules set by the National Association of Realtors. Mary Jo Cowan is CEO of Stellar MLS in the Orlando, Florida area. She says it's a uniquely North American system. In most places in Europe, you have to, if you were looking for a property, get in your car, drive around and go to the storefront of real estate offices and see what they have in their office. And if you search online?

The same seller could list the house 10 times with 10 different agents, it would be on the internet with 10 different prices. It's chaos in most places. That is starting to change. Cowan is part of a new international MLS forum working to bring the U.S. model to the rest of the world. I'm Amy Scott for Marketplace. My name is Austin Golding.

I'm president and CEO of Golding Barge Line and we are located in Vicksburg, Mississippi. I think a rate cut to us definitely helps lower the cost of growth and additional equipment and additional expansion. But you know for us, quite frankly, we've enjoyed earning a nice interest rate in our cash balance and not having much risk associated with that rate of return. But no, I'd say the emotion is hopefully a general optimism. Coming up. You've been on ecstasy for six months. You're in two months of rehab. Does the world really feel good to you?

No. But first, let's do the numbers. Dow Industrial is off 103 points, about a quarter percent, 41,503. The Nasdaq off 54 points, three tenths percent, 17,573. S&P 500 gave back 16 points, 3 tenths percent 56 and 18. Traders changed their mind today heading into the close. Amy Scott was telling us about the MLS in some residential real estate stocks then Zillow gained 3 and 8 tenths percent today. Compass lost 2 and 3 tenths percent to open door technologies

closed down about 6 and 8 tenths percent today. Seven board members of the DNA tester 23 and me resigned this week because they disagree with its CEO's plans to take the saliva sampling company private. Two best known competitors by the way, Ancestry.com and MyHeritage do happen to be privately held. 23 and me off 1 and 7 10s percent today. Bonds just because of the Fed? Well prices went down. The yield on the 10 year T note, oh look at this, went up 3.7%. You're listening to Marketplace.

Hi, this is Phoebe in Honolulu, Hawaii. The economy shapes our lives and Marketplace helps me keep up with that force without getting bogged down in bad news. I also appreciate their focus on gender and racial inequity and non-climate change. And I love the growth agnostic stories about drivers of our economy other than consumption. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate. This is Marketplace.

I'm Kai Rizdahl. Fed Chair Jay Powell will tell you, should you ask, and I have, that he really wants the American people to understand, first of all, what the Fed is doing, and second of all, why. That's a huge change from the Federal Reserve of yore, when Alan Greenspan and his predecessors seemed to take pride in their opacity. Believe me when I tell you that helping people understand what the Fed's doing is no easy task, especially at a time when inflation and a presidential election have the central

bank a lot more front and center than it usually is. So how's Powell doing? Marketplace's Matt Levin asked him communications professionals. I asked UCLA linguist Jessica Rett this morning what she was planning on eating for lunch. I feel like a grilled chicken Caesar salad today. Then I asked her how Jay Powell might answer that question based off her analysis of some speeches and press conferences he recently gave. It depends on a number of factors.

I could imagine a scenario in which the data... Everyone knows lunch is data dependent. Brett says Powell couches his comments in hypotheticals and hedging, which makes sense. If inflation rears its head again, or if the labor market drops off a cliff, Powell doesn't need critics or presidential candidates saying, hey, you said you weren't going to do the thing you just did. He has plausible deniability in case something goes wrong.

At the same time, Powell also needs to project credibility that the Fed knows what it's doing. And now that inflation is mostly whipped, it can safely change policy. Allison Fregale at the University of North Carolina researches communication styles. She noticed a helpful habit in Powell's July press conference. He does reference the committee a lot, the FOMC quite a bit. It's a form of social proof which promotes competence. I don't think this, we think this. We is always more persuasive than I.

Overall, Powell got pretty good marks from most of the communication experts I talked to. Tamsen Webster, who does message consulting for companies like Stage Street, said she was mostly able to parse through the jargon in Powell's Jackson Hole speech last month. But since his audience in Wyoming was both economists and the public, she has a suggestion. Anytime you've got very detailed information, like what he's presenting here, present it also with conceptual and I often recommend metaphorical information so people can really understand what he's talking about.

Selfishly, though, as a journalist, hopefully Pal doesn't get too good at explaining himself. That's kind of my job. I'm Matt Levin for Marketplace. My name is Lisa Goldenberg from the Delaware Steel Company of Pennsylvania. I would say I'm not a policy expert by any stretch. However, we've been anticipating this change, so I'm kind of on it. I wouldn't say I'm watching closely. I would say I'm on of on it. I wouldn't say I'm watching closely. I would say I'm on bated breath.

Manufacturing has definitely slowed down and some of the interest rate hike got baked into the numbers and now we're getting kind of the ramification, the long-term effect of it being there too long. So as rates come down, I'm very optimistic that it's going to give a real jump. Today's rate cut feels like a very big deal in this moment, but honestly, we've been here before. It wasn't actually all that long ago that Jay Powell was talking at a press conference about rate cuts after years of increases. Summer of 2019, practically yesterday, except not really, because in some ways the economy

back then was similar to today. In some ways, it could not be more different. Marketplace's Stacey Vanik-Smith has the then and the now. July of 2019. There was a new Joker movie out. Taylor Swift was topping the charts, and the economy was still trying to shake off some of the scars from the financial crisis. And Jerome Powell announced he was going to cut interest rates for the first time in years. The domestic inflation shortfall has continued. Core inflation, which excludes...

You heard that right. Inflation shortfall. The big economic worry in 2019 was that inflation was too low, which right now feels a little bit like somebody complaining about how hard it is to be so good looking. The Fed had this problem of the risk of deflation. Sebastian Malaby is a senior fellow at the Council on Foreign Relations. He says as awesome as prices dropping might sound, nobody wants deflation. Once the prices are actually falling, then nobody wants to spend money because if they wait six months, the thing they want to buy is going to be cheaper.

When people stop buying things, companies will cut prices to boost sales. But customers will typically wait because they suspect prices will fall even more. And then things just don't sell. Companies stop making money, they stop growing, they start laying people off, and then the whole economy starts to shrink. And then you get this deflationary trap where nobody's spending. So what's a central bank to do? Cut interest rates, of course.

This makes it cheaper to borrow money. So people borrow more and spend more and hiring expands and the economy grows. That was Powell's logic back in 2019, but there was a snag. Interest rates were already super low, just about two and a half percent. So cutting interest rates would be less of a slash and more of a julienne.

Some countries would have interest rates that low because you don't have much space to cut. And the series of mini rate cuts the Fed made back in 2019 didn't help that much. Inflation kept falling, and economic growth stayed pretty slow. Enter the pandemic. The Federal Reserve immediately cut interest rates to almost zero to keep the economy going. After that, spending soared, so did inflation, and the Fed jacked interest rates all the way up to about

five and a half percent, which brings us to today. Today we're in a totally different environment. Five years later, and it's a whole new world. There's a new Joker movie out. Taylor Swift is topping the charts, but now she is in love. And actually so is the Joker. So yeah, 2019, not that long ago, but the economy looks pretty different. It is growing, but the job market has been slowing down.

Am I really worried? No. Steve Rusciuto is chief economist for Mizuho Securities. He says right now, the Federal Reserve wants to cut interest rates to boost the economy, especially the job market, make borrowing cheaper so companies will expand and create more jobs. But he thinks we may have lost perspective. Yes, the job market has slowed down.

But it's from a ridiculous high. You've been on ecstasy for six months. You're in two months of rehab. Does the world really feel good to you? No. Ecstasy being the billions in government pandemic stimulus and a job market that got so hot, there were two open jobs for every available worker. Rashido thinks the Fed needs to be careful not to cut interest rates too fast.

Otherwise, inflation could rise again. And the people you're trying to help, in particular, the lower income households, you actually heard. Sebastian Malaby says the Fed has just a few very powerful but pretty blunt instruments, like interest rates, to try and balance a bunch of different contrasting forces. Inflation, economic growth, unemployment, political pressure, financial markets. You could see the central bank as being in a dance with a very scary dance partner, right? Like the global markets. Companies, they always want to see action that's going to grow the economy. But that might not always be what's best for controlling inflation.

You're dancing with this partner who's like yelling at you to do the foxtrot, not the tango. And you have to sometimes, you know, lead the dance. And so far, Malaby says, the Fed has proven to be pretty light on its feet. Skirting a recession, tamping down runaway inflation, sashaying past a lot of political heat. Now it just needs to figure out how much and how fast to cut interest rates so that everybody can keep dancing. In New York, I'm St Banach-Smith for Marketplace. This final note on the way out today, just to put the macroeconomic news of the day into

context, which is after all our job. When we woke up this morning, the effective federal funds rate, basically the average rate of overnight lending operations at the Fed. It's complicated, but that's the basics. The effective federal funds rate was 5.33%. It's going to take a couple of days. Remember Justin Ho's piece on Monday on open market operations, how the Fed actually does control interest rates?

Anyway, my guess is that in a couple of days, the effective rate is going to be about 4.9%, maybe a little bit less. So, yes, it is big that the Fed made its cut, but the cut itself, relatively, wasn't all that big. Our media production team includes Brian Allison, Jake Cherry, Jessen Dooler, Drew Jostat, Gary O'Keefe, Charlton Thorpe, Juan Carlos Torrado, and Becca Wyndon. Jeff Peters is the manager of media production, and I'm Kai Rizdal. We will see you tomorrow, everybody.

This is APM. Hi, I'm Kai Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today, though, there's another threat out there, climate change. This could be the warmest year on record.

Climate change is here. Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to How We Survive, wherever you get your podcasts.