The NPR Politics Podcast - As Fed Makes Borrowing Easier, Candidates' Economic Pitches

Episode Date: September 19, 2024

It just got cheaper to borrow money in the United States; the Federal Reserve cut interest rates, signalling that it believes inflation is largely over with and the economy is generally strong.Here's how Vice President Harris and Donald Trump are talking about the state of the economy and their policy proposals.This episode: White House correspondent Deepa Shivaram, campaign correspondent Danielle Kurtzleben, and chief economics correspondent Scott Horsley.The podcast is produced by Jeongyoon Han, Casey Morell and Kelli Wessinger. Our editor is Eric McDaniel. Our executive producer is Muthoni Muturi.Listen to every episode of the NPR Politics Podcast sponsor-free, unlock access to bonus episodes with more from the NPR Politics team, and support public media when you sign up for The NPR Politics Podcast+ at plus.npr.org/politics.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hey, this is Luke, and I'm calling from my cattle ranch in southeastern Montana while I'm currently fixing fence that the cows broke through this morning. This podcast was recorded at 2.09 p.m. on Thursday, September 19th, 2024. Things may have changed by the time you hear this, but I'm hoping that the fence will be fixed and the cows will be back on the right side of it. Enjoy the show. Okay, you listeners don't know this, but we were just talking about cows. Our producer Kelly was just asking Danielle, what's your favorite animal? And I said Holsteins. Cows are just beautiful creatures. That was so lovely.

Oh, love it. Hey there, it's the NPR Politics Podcast. I'm Deepa Shivaram. I cover the White House. I'm Danielle Kurtzleben. I cover the presidential campaign. And chief economics correspondent Scott Horsley is here with us today. Hey, Scott. And today on the show, the Federal Reserve announced that it is cutting interest rates for the first time in a few years now. Scott, this is a sign that they're feeling confident about the state of the economy. But I want you to kind of walk us through here how that might change in practice and what this decision really means. Well, it's going to make it cheaper to borrow money. So whether you carry a balance on your credit card or you're trying to get a percentage point, but they also signaled that another half-point cut is likely by the end of this year

and another full-point rate cut in 2025. So if you're going to be borrowing money, it's going to be cheaper to do that in the coming months. If, on the other hand, you are someone who has money in the bank, you're probably going to get a little bit less interest on your savings account. Okay. And this impacts people who are trying to buy homes, taking out loans for other things, reasons like that. That's right. The home loans are not directly tied to the Fed's benchmark rate, but they are certainly influenced by it. And in fact, mortgage rates had already been falling in anticipation of this action by the Fed. Mortgage rates this week ticked down to 6.09 percent, which is down

quite a bit from where they were a year ago, but still a lot higher than they were during the pandemic. I mean, the broad strokes way to think about this is lower interest rates means lower borrowing costs, which theoretically should give the economy some sort of a boost, right? You know, lower interest rate, for example, on your car loan, that sort of thing. Even if those, the way these things are tied, as Scott was just saying, is kind of indirect. The one thing that I would want to add here is you walked into this by saying that the Fed is feeling confident about the state of the economy. I think the finer point we would want to put on that is the Fed has had interest rates a bit higher to try to cool down inflation. This is showing that they are at least feeling like, okay, inflation has

cooled a bit. We can pull back on that and let the money flow a little bit more. Okay. That's a good way of putting it because my next question was going to be, why is this happening now? Yeah. I think Danielle's right. The Fed is feeling pretty confident that they have inflation more or less under control. It's not all the way back to their target, which is 2%, but it's sort of within striking distance. Inflation's come down a lot from where it was a couple of years ago. And at the same time, we've started to see some softness in the job market.

So the Fed doesn't want to leave interest rates so high that they unnecessarily slow the economy too much and result in a spike in unemployment. So they're trying to strike a balance here. They think they've made enough progress on inflation that they can start dialing back those high interest rates and kind of protect the pretty strong job market that we've been enjoying. But the thing to keep in mind here is, I mean, we all talk to voters on a generally regular basis. I mean, folks that you meet on the road aren't exactly like, oh, wow, like this means the economy is doing so well. I'm really feeling that. We talk about this all the time. So I kind of want to get into that split, right?

Like people are still frustrated about high prices, the cost of groceries, things like that. Is this something that you think will affect their perceptions and people's personal perceptions of the economy and their own pocketbooks? Personally, I think people are going to be happy to see that prices are not rising as fast as they were, but people also have, you know, memories. And a lot of people out there remember when milk was $3 a gallon instead of $4 a gallon. And when they are paying $4 a gallon, even if they're happy, it's not growing really fast. They still wish it were three and they still think, well, used to be three. Why can't it still be? It's still possible. And the one thing I would add to that is also, it's not just about prices. It's about wages. It's about, you've had prices go up, up, up, up, up, have people's wages kept pace with prices. And broadly speaking, correct me if I'm wrong, Scott,

that has not happened, has it? Well, actually, it all depends on when you start the clock. If you look back to the before times, before the pandemic, average prices are up 21.6%, while average wages are up 23%. So the average worker today has more buying power than they did just before the pandemic. But prices actually fell on most things early in the pandemic. So if instead you start the clock, say in 2021, when Joe Biden and Kamala Harris went into office, if you use that as the starting point, prices are up more than wages. And of course, a lot of people don't think of their pay raises as ways to keep up with rising prices. They think of those two things separately. They think their pay raise is a reward for good

behavior, whereas rising prices are just something that fell out of the sky. But it's absolutely true that even though prices are no longer going up nearly as fast as they had been, and even though grocery prices in particular have pretty much leveled off, they've rose less than 1% over the last year, people are very frustrated by the cumulative price increases that we've seen over the last several years. Even if their wages have kept pace or almost kept pace with those price increases, people are really bothered by that. And folks at the Federal Reserve understand that. Fed Governor Chris Waller said, look, I get it. I go to the grocery store

and I look at things on the shelf and I say, hell no, I'm not going to pay that. So that is certainly part of the psychology. In most cases, prices are not going to go back to where they were pre-pandemic, but wages will eventually catch up. Now, one exception to this is gasoline prices. Those are really volatile, and in the last year, they've been coming down quite a bit. That's one reason we've seen consumer sentiment, consumer confidence tick up a little bit. I was out last weekend and noticed that there's a gas station in my neighborhood where the price is under $3 a gallon. That gets people's attention, and that's why we've seen a little bit of an uptick in sentiment in recent weeks. That's interesting.

But one thing that kind of complicates all of the conversations about this, right, are that people often view the economy through a partisan lens, right? It's not just a black and white issue per se. I know you don't have a crystal ball here, but I'm curious for both of you, how do you think this decision might impact how voters are thinking about the candidates, right? Because there are definitely a lot of polls showing, you know, who they trust more on the economy. And right now it is still Donald Trump. You know, for a lot of voters, I don't know that this particular decision will impact their votes. I don't know how tight of a view a lot of voters have on the federal funds rate or the Federal Reserve, or even to what degree they are thinking about the knock-on effect of that, the fact that now maybe it's easier to get an auto loan, like maybe.

Now, I don't know whether they tie that to Donald Trump or President Biden or Vice President Harris, but I do think that more broadly, if we're talking about the economy, you're right. One thing we do know is that consumer sentiment, the index put together by the University of Michigan, is partisan. Democrats right now under a Biden administration tend to see the economy more positively than Republicans. The reverse was true under Trump. And we know that it grew more partisan under Trump than it had been. So to me, it's complicated. But to me, first of all, what it means is that perhaps the economy has less of an effect on voters than it did before. As voters grow more calcified, there are plenty of voters

who, no matter what the economy does, are never going to vote for Donald Trump. And there's a plenty of voters who, no matter what it does, are never going to vote for Kamala Harris. And as for those voters who are swayable, to me, it's the economy right now gives Trump, if you will, you know, an arrow in his quiver, you know, to say, well, inflation is high. So therefore, I'm going to just attack, attack, attack Kamala Harris on that. And we will see how that works. And similarly, because the economy is relatively strong right now, even though people are angry about prices, it does give Harris something to say, you know, the economy is strong. Look at this. And I want to help lower and middle income people. It's just a question of how well she makes that case. All right. We'll talk more about economic policies from each of the candidates

when we get back after the break. And we're back. So both Trump and Harris have been talking about specific policy proposals when it comes to the economy. There's so much that changes, though, between what a candidate proposes during the campaign season, right, and then what it actually turns into and what it looks like when it becomes the law. So generally speaking, you know, odds are no matter who wins here, the ideas that they're proposing now won't exactly look like this if they're in office. It does, though, kind of tell us what direction they want to steer the ship. And, you know, both of you, let's start with Harris here. What are some of the key ideas she has raised? So Harris has talked about a lot of her economic proposals under the broad umbrella of what she calls an opportunity economy.

And she explained it to the National Association of Black Journalists this week as follows. And so my plan for the economy includes what I imagine and believe and call an opportunity economy. What we can do to grow an opportunity economy where all people have access to the resources to compete, to apply their incredible work ethic, their ambition, their aspirations, and their dreams, and actually not just get by, but get ahead. Super specific. Yeah, well, I mean... I'm for opportunity.

Who isn't? But I mean, she does have a few proposals, of course, that kind of fall under that. She has some that we've heard from progressives over the years, like universal pre-K. She does want to expand the earned income tax credit, which would greatly benefit, of course, lower income people. She has a housing plan where she wants to provide tax benefits to home builders and streamline the permitting process to grow the housing supply, which, of course, would mean lower house prices. thousand dollars to first-time homebuyers as a down payment. That is unusual. That's not something I've heard before. Maybe you have, Horsley, but I don't know if I've seen a candidate do that before. Beyond that, she also wants to increase corporate taxes. Broadly speaking, you can call this pretty redistributive. You know, higher corporate taxes, higher taxes on wealthy, even a wealth tax, potentially. Yeah, I mean, she's embraced most of the tax proposals that President Biden has repeatedly pushed in his budgets. She's broken with the president a little bit when it comes to capital gains taxes for the wealthy.

She would raise them, but not quite as high as Joe Biden has wanted to raise them. But overall, we haven't heard a whole lot of specifics from Kamala Harris on what her economic recipe would look like. Opportunity certainly sounds good. But, you know, this is where not having gone through a lengthy primary process, we just don't have a whole lot of detail of what she's for in terms of the economy. Yeah, I think that's also kind of by design politically, right? I think, you know, as we know, most voters aren't voting specifically on policy. And when she puts out more specifics, that opens the door to kind of take more hits. So it's definitely by design that we haven't heard a ton from her on

this. What have we heard from Trump? I wouldn't put Trump's economic proposals under the kind of umbrella that I think you can maybe put Harris's proposals under, that sort of redistributive, progressive, opportunity economy way that she talks about it. But Trump does, of course, have some key proposals he's talked about a lot. He's talked about tariffs a lot. He earlier this year had said he would do 10 percent across the board tariffs. And here he was last month in Asheville, North Carolina. We're going to have 10 to 20 percent tariffs on foreign countries that have been ripping us off for years.

We're going to charge them 10 to 20 percent to come in and take advantage of our country because that's what they've been doing for nothing to take our jobs. We're going to charge them. In addition to those, he has said he would have even higher tariffs on Chinese goods. At one point, he said 60 percent on Chinese goods. Now, one thing I really, really want to get at here is that Trump often talks about tariffs in a very misleading way. He talks about them as if China or any other country is putting money into the U.S. Treasury. China is not paying these tariffs. This is not a tax on China. I cannot say that enough. The money is being paid by U.S. companies buying those goods from overseas. And so those costs get passed on to American consumers. That raises prices. It might mean that U.S. buyers end up buying fewer Chinese goods, but it has nothing to do with China giving money to the U.S. or any other country for that matter. Yeah, I mean, Trump imposed an awful lot of tariffs during his first term in office. He's certainly talking about even more draconian

and sweeping tariffs if he gets a second term in the White House, but he went a long way to impose tariffs in his first term. I mean, we went from being basically a very low tariff country to being a sort of middle tier tariff country. And what we've seen is the Biden administration has basically

maintained all those tariffs and added some more of its own. Now, economists, generally speaking, don't like tariffs. And the experience that we've had over the last eight years is that they don't do a lot to promote American manufacturing. Trump's China tariffs did in some cases drive manufacturers out of China, but it drove them to places like Vietnam and Mexico. It didn't cause them to bring jobs back in the United States. It certainly raised costs for U.S. businesses and consumers. And we also had our trading partners impose retaliatory tariffs on the U.S. I mean, I'm old enough to remember that U.S. farmers lost an enormous amount of money because China stopped buying corn and soybean from

American farmers. And in fact, the Trump administration had to go in and pay rescue money to farmers because the damage that was done by the retaliatory tariffs. So trade wars, despite Donald Trump's claim, are not smart. They're not easy to win. But we really haven't seen a break from that trade war philosophy from the Biden administration. Just a couple other bullet points from Trump's economic plans. First of all, he sort of has a run of tax cuts that he wants, you know, no tax on tips, no tax on overtime, no tax on Social Security benefits. Now, economists have all sorts of complaints about those sorts of things, and those are important. But one thing that I would point out is that Trump is a Republican Party nominee for president. But

between these, also the fact that he wants to cut the corporate tax rate, Trump's proposals are calling for a whole lot of tax cuts without any sign of how that revenue would be raised. And it does not seem that tariffs would actually make up for any of that. I mean, you know, tariffs would raise some revenue. They come with a downward consequence. They wouldn't raise nearly as much revenue as Donald Trump has claimed they would raise. And one reason for that is we import a lot of stuff, but we don't import that much. So whether you slap a 10% or a 20% tax on it, we're talking hundreds of billions of dollars,

not trillions of dollars, as Trump has argued. And once you start taxing it, presumably those imports would go down a little bit. And Danielle is absolutely right. We are going to run a nearly $2 trillion deficit this year. This at a time when we are not at war, we're not in a recession, we're not in the depths of a once-a-century pandemic. So the fact that we are almost $2 trillion in the hole, and just last week, the Treasury Department told us that we have spent more than a trillion dollars this year just paying interest on the federal debt. It's more than we spend on Medicare. Only Social Security eclipses interest on the debt as a line item in the federal budget. The country

desperately needs to do something to get its fiscal house in order. Yeah, I think good to end on the big picture there, which is deeply concerning. Whichever candidate we get here, you can find more on this topic at npr.org slash economy, or by listening to our daily podcast, The Indicator. But let's leave it here for today. Scott, thanks for joining us. Always good to be with you. I'm Deva Shivaram. I cover the White House. I'm Danielle Kurtzleben. I cover the White House. I'm Danielle Kurtzleben. I cover the presidential campaign. And thank you for listening to the NPR Politics Podcast.