Today, Explained - The ¯\_(ツ)_/¯ economy

Episode Date: December 11, 2025

Trump calls the idea of “affordability” a hoax. Nonetheless, he pressured the Fed to fix it. It's just one example of Trump prizing loyalty over economic expertise. This episode was produced by Miles Bryan and Dustin DeSoto, edited by Jolie Myers, fact-checked by Laura Bullard, engineered by Patrick Boyd, and hosted by Noel King. President Donald Trump during an event on inflation in Mount Pocono, Pennsylvania. Photographer: Adam Gray/Bloomberg via Getty Images. Listen to Today, Explained ad-free by becoming a Vox Member: vox.com/members. New Vox members get $20 off their membership right now. Transcript at ⁠vox.com/today-explained-podcast.⁠ Learn more about your ad choices. Visit podcastchoices.com/adchoices

President Trump has taken flack recently for not appearing to get that Americans think life is too expensive. At a rally in Pennsylvania on Tuesday that was supposed to be about the economy, he made fun of Joe Biden. What state is it? It's Pennsylvania. Oh. He ranted about immigration. He reminisced. He returned to old chestnuts. You don't need $37 for your daughter. Two or three is nice. But he offered little in the way of acknowledgement. They say affordability, and everyone says, oh, that must mean Trump has high prices. No, our prices are coming down tremendously.

When he's not denying the problem, Trump is often pinning the blame on his favorite target, the Federal Reserve, for not cutting interest rates. Trump has always dismissed technocrats. In his second term, he's relying more on instincts than experts, and it is starting to damage his presidency. That's coming up on Today Explained. Support for this show comes from Odu. Running a business is hard enough,

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They're listening to it. Today is playing. I'm Neil Irwin. I'm the chief economic correspondent at Axios. Yesterday, before, the Fed made its decision on interest rates. It seemed like a lot of people were watching very carefully, including people who are not normally interested in particularly interested in what the Fed does. What were the stakes yesterday? Well, the big question has been how much do you cut

interest rates? You know, the Fed, when inflation was roaring, they raised interest rates a lot, up to almost five and a half percent. And then they've been kind of steadily bringing them back down. And what we have is this moment where there's still high inflation, there's tariffs coming through the system. The economy looks a little shaky. The job market looks a little shaky. The president is hammering the Fed every other day to cut rates, cut rates, cut rates. And the challenge for Jay Powell and the Federal Reserve is, do we do it? Do we do a third interest rate cut this year? And does that give consumers and businesses some relief from these high interest rates of the last few years? All right. So tell me what the Fed did yesterday and why you think they did it.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. So they lowered their target interest rate. This is kind of the baseline interest rate that affects rates across the economy by a quarter percentage point. That was the third quarter point cut this year. They did another percentage point of cuts last year. So, you know, all in all, we're down one and three quarters percent from where things were back during the great inflation. And, you know, what they did is, the reason they did it is because they see some evidence that the job market is starting to crack a little bit.

I think you can say that the labor market has continued to cool gradually, maybe just a touch more gradually than we thought. And they think that even to the degree inflation is a problem, it's a temporary problem. A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level. This tariff pass-through is going to come and go and affect prices in a one-time way, not in an ongoing inflationary way. and therefore they think it's time to lower the dial, make interest rates a little lower, and therefore help the economy along as the job market stumbles. There were three Fed governors yesterday who voted against the cut. Who are they? And why did they dissent?

There's two sides to this. One dissenter was Stephen Myron, who's a governor appointed by President Trump just a couple of months ago. He wants even more rate cuts. So he has embraced the Trump line that rates seem to be a lot lower, that the economy can really benefit from it, and it won't cause an inflation problem. Given my rather more sanguine outlook on inflation than some of the other members of the committee, I don't see a reason for keeping policy as restrictive for a long period of time as we are. So he wanted to cut interest rates, a half percentage point, go more aggressively than

the rest of his colleagues did. The two dissenters on the other side were Chicago Fed President Austin Goolsby, Kansas City Fed President Jeff Schmidt. They both wanted to leave rates where they are. They think that inflation is still too much of a problem, that they're really playing with fire if they cut rates now and ignore the kind of elevated inflation that we keep having year after year after year. I am uneasy with front-loading rate cuts. I do believe rates will come down, but in a way, rates should come down with inflation. If we're just counting on that to go away because it's transitory, that makes me uneasy.

There are also some shadow dissenters. What do I mean by that? So the Fed releases these projections four times years. year, and it includes dots on what each official thinks the rates ought to be over the next couple of years. And if you count up those dots, and people like me have a lot of fun counting up these dots one by one, there were actually six officials out of the 19 who thought it would make sense to leave interest rates where they are. That means that in addition to the two people who actually dissented, there's probably four more officials who, in their

heart, kind of wanted to dissent, maybe didn't have a vote this cycle. And so there is some real disagreement within this committee of what interest rates ought to look like right now. Let's go back to Myron for a second and what he represents. So he's a Trump guy. He wanted a bigger rate cut. Trump, as you know, has been yelling at the Fed to cut rates since he took office, sometimes very loudly. He's threatened Jay Powell. I'd be honest.

I'd love to fire his ass. He should be fine. Guy's grossly incompetent. Will yesterday's cut make him a little happy, a lot happy? Does it get us part of the way toward what he wants? I feel like a thing we've seen with President Trump is he will never. take the win. You know, he wants rates a lot lower and he's getting them. He's gotten three rate cuts this year, but it's still not enough. He was just yesterday, just in the last, you know,

since the meeting, he's been saying that rates should be cut much more. He did a rather, I would say a rather small number that could have been doubled, at least doubled. You know, that said, because of these dissents and shadow dissents that we talked about, I think it's going to be a hard slog to persuade these officials that in a time of three percent inflation, which is still higher than they want, that there should be significantly cheaper money. Questions are emerging, I'll say, in the passive tense about whether the president really understands the affordability crisis in America, right? They have a new word.

You know, they always have a hoax. The new word is affordability. Polls show that voters think everything is too expensive, the cost of living is too expensive, and the administration has not done enough to help them. Trump, when confronted with that, has a tendency to say everything's fine. You're getting lower prices, bigger paychecks. Or it's the Fed's fault. The head of the Federal Reserve is a stiff.

The Fed means to lower interest rates and will all be good. Does Trump have a point here? Is the Fed standing in the way of affordability? So here's the central problem. And this is a disconnect between the way economists think of these policy levers and the way laymen and kind of ordinary people do. So if you're the Fed, you think that the way you preserve affordability, the way you keep inflation low is by raising interest rates or keeping rates high. That's how you keep aggregate demand and check. That's how you keep inflation

from becoming a problem. Back in 2022, when inflation took off, they raised rates a lot to try and bring it back down. And it worked. Now, to ordinary people, higher interest rates are part of the affordability crisis, right? So higher mortgage rates, higher auto loan rates, those are things that make life more expensive. So to you, what the Fed thinks they're doing to help affordability help inflation is actually making affordability worse. And I think the president views it through kind of that lens in the same way that a lot of normal civilians do. And it creates a real disconnect between what the Fed thinks it needs to do to help on affordability, keep inflation in check, and what's perceived by everybody out there. All right. So Jay Powell's term,

as Fed Chair, is up next spring. Trump has turned the process of finding replacement into a little bit of a show. Who is the favorite at this point? Yeah, it really has become a reality show. It's kind of a cliche, but it's, it's, a cliche is true. It's accurate. You know, allegedly there are five, maybe down to four finalists, but it looks pretty clear that the president is strongly leaning toward Kevin Hassett, his White House Economic Advisor to be the next Fed chair. I am really the happiest person ever when the president said I could come and be the director of the National Academic Council. It's a dream job. And coming here every day is a blast. So Kevin Hassett is the director of the White House National Economic

Council. He worked for President Trump in his first term as Council of Economic Advisors Chair. So this is somebody who the president has a longstanding relationship with and somebody who goes on TV and speaks the administration's line quite a lot. Trumpanomics works and Bidenomics doesn't. And so we've got lots of good news to report to the American people. You know, he's worked at think tanks and kind of conservative policy circles. So, you know, he's a credible candidate for this job. This is not some, you know, complete crank. At the same time, you know, he is somebody who has become very political and has really made it his, you know, centerpiece of his job in the last 10 months to be somebody who's out there speaking on behalf of defending, arguing on behalf of the president in a way that he's just, he is more politically intertwined with the president than we've seen in recent Fed share appointments. What are the stakes of having a Fed chair who's very loyal to the president, to a president like Trump?

So the real question is, you know, look, the Fed is set up to have all these levels of independence. So the governors are appointed for 14-year terms. They cut across presidential administrations. They, the Reserve Bank presidents around the country have their own weird selection process through which they're selected. So it's meant to be insulated from day-to-day politics. The question is, would Kevin Hassett or whoever ends up being the next Fed chair, be more directly responsive to what the White House wants, what the president wants, than has been the modern norm? And, you know, where that rubber hits the road is, let's say we have an inflation problem a year or two from now. Does Fed share has it or whoever ends up in that job? Are they willing

to do what it takes to raise interest rates to try and bring inflation down the way the Fed did in 2022, the way the Fed did in the early 1980s? And, you know, that's something that no president wants to see. They don't want to see higher interest rates. They don't want to see the economy kind of choked off by the Fed. At the same time, the reason the Fed has this independence is so that they will be willing to do that, to do whatever it takes to keep inflation in check. Will a chair has it or whoever it ends up being be willing to do that? Will he or won't he? We're going to keep our third eye open.

Neil Irwin is the chief economics correspondent for Axios. Coming up, why American presidents don't listen to economists anymore. Defenders and cybersecurity are always there when we need them. They should get a parade every time they block a novel threat and have streets, sandwiches, and babies named in their honor. But most of all, they deserve AI cybersecurity that can stop novel threats before they become breaches across email, clouds, networks, and more. DarkTrace is the cybersecurity defenders deserve

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So we're taking a look, and it looks like it's about... Today, explained. I'm not aware of that. Yeah, it just came out. Yeah, I haven't heard that from anybody. I'm Noel King. Vox, senior correspondent, Andrew Procop, has been been writing for Vox about how from Maga to Mamdani, America's political class stopped listening to economists. So I think to understand what changed here, we have to go back to how economists gain this special status in the first place.

They rise to prominence and politicians view them as useful and important when it seems that, their ideas and their knowledge is useful at solving political and policy problems. So back in the 1930s, the Keynesians, they managed to help guide us out of the Great Depression and then to basically shape the post-war world. The Keynesian economists advocated increased government spending and intervention as a way to get the country out of that recession. and they helped President Roosevelt, in his view, solve the problem that the country was facing.

Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the government itself. decades later in the 1970s the Keynesians ideas were struggling with the challenges the country was facing then high inflation high unemployment people who want to work but can't find jobs are part of today's other bad economic news the inflation has cost us dearly in the last year one hidden cost is to our sense of freedom if you think it was tough to make ends meet in 1974 wait till you hear about 1975 So we got a new class of economic, economist, advisors who rose, the neoliberals. They argued that it was often the case that government was getting in the way of economic growth and prosperity,

and that the solution was often for government to do less, to deregulate, to cut taxes. Inflation is made in Washington because only Washington can create money. What produces it is too much government. government spending and too much government creation of money and nothing else. So the neoliberal seem to really have cracked the code for a while. Politicians in both parties really did kind of gravitate towards this analysis, which seemed to be effective to many in producing economic prosperity throughout, you know, the Reagan administration. When I sign this bill into law, America will have the lowest marginal tax rates and the most modern tax code among major industrialized nations.

The Clinton administration. In a few moments, I will sign the North American Free Trade Act into law. Matthew will tear down trade barriers between our three nations. The beginning of George W. Bush's administration. I think we ought to focus our efforts on three great forces for economic growth. Free markets, free trade, and free people. And really the core idea of neoliberalism was that markets know best, that the state, when it tries to interfere with markets, is highly likely to screw things up. The Great Recession then happens at the end of George W. Bush's administration leading into Barack Obama's.

We're in the midst of a serious financial crisis, and the federal government is responding with decisive. action. Now it's official. We are in a recession. Wall Street is clearly worried. The Dow plunged nearly 680 points today or 7.7%. Barack Obama continues to rely to a great extent on the economist establishment in crafting his response to the Great Recession. He very much believed this worldview that economists did have special knowledge of some kind that he wanted to have considered in policymaking. And so it was really the post-Obama years when economists were gradually and in some cases suddenly pushed from the lofty perch that they held. All right. So they're pushed from their lofty perch. And at what point did they like hit the

ground? Like when would you say this hits peak? We don't respect economists anymore. Well, what happens next is kind of two different processes unfolding in each of the two major parties that have some similarities but are also kind of fundamentally different. On the Republican side, it's really pretty simple. Donald Trump wins the primary. This has been an amazing evening. Already we've won five major states and it looks like we could win six or seven or eight or not. And once he wins, much of the previous Republican establishment is going to be on its way out. He has no interest in them.

The party is increasingly steered by his own preferences, and he has no use for high-falutin academic debates, arguing big-picture principles and economic models in front of him. And while there are certain economists who do hold prominent positions in the Trump administration, they generally hold those positions if and only if they are saying what Donald Trump wants to do anyway. I have to say that President Trump has been right on this, nation after nation, trade negotiator after trade negotiator. Trump has normalized the idea of a 15 to 20 percent tariff. Donald Trump is not interested in the wisdom of economists. Donald Trump is interested in whether economists can lend their imprimatur and expertise

to his own policy agenda that he wants to implement. On the Democratic side, there is a bit of a different story. The Democratic side's confidence in the economic neoliberal establishment was increasingly shaken by this progressive challenge from the left that we saw with Bernie Sanders, that we saw at the rise of Elizabeth Warren, but also by Trump's 2016 win in and of itself. That really shook the party's confidence that their economic policy was on the right track. There was a lot of focus on who had been left behind from trade.

Why had Democrats lost the Rust Belt? And I think what you saw in this election here is white working people in these rural areas seeing that someone actually was articulating the fact that they had become disenfranchised and that's why they gravitated toward Trump. Some people argued

that this was really about culture and about immigration and that it didn't really have that much to do with economics at all, but others argued that Democrats' economic policies had gotten out of touch with the working class and to kind of beholden to this

kind of a neoliberal view of the world. Eventually, Joe Biden wins, and he is similar to Donald Trump in some ways in that he also has very little use for high-minded academic debates playing out in front of him. I interviewed Jason Furman, a Harvard economist who worked in the Obama administration, and he told me that President Obama would typically start me. meetings by having the policy people talk, and then the political people would then weigh in after, and it would become more of a free-form discussion after that. But in his experience, then-Vice President Biden didn't do anything similar to that. Often politics or the demands

of interest groups kind of came first, and there wasn't really the same elevation of wonky economic debates among economists. There have always been, uh, jokes about economists, things like these are people who can be wrong half the time and still keep their jobs. Like, the skepticism is nothing new. And in a lot of ways that, you know, fair points have been made about what economists actually bring to the table. But here we are in 2025. And we've got a crisis of affordability. We've got interest rates that are a lot higher than most people would like. We've got inflation that's higher than a lot of people would like. do you think what this year and this time is proving is that the economists actually were the ones holding us back from the brink in some sense?

Yeah, it's really interesting. In the 2010s, there was the left critics and the right critics of economists, but now people are positively nostalgic for the economy of the late 2010s. Of course, what then happened was the pandemic, inflation, war in Ukraine, producing a new series of problems in the 2020s. And the economists argue that, you know, if people had listened to us a little more, if Joe Biden had listened to us when we were warning about inflation in early 2021, then perhaps we wouldn't have sunk to this pretty bad place where the public is just absolutely furious about. affordability and high prices that wrecked Biden's popularity, wrecked Democrats' 2024 chances, and now are imperiling Trump's own popularity as well. The problem is that now that we are in 2025

and facing the problems of 2025, economists don't really have a consensus quick fix to the mess that we're in. You know, they don't really have a superior quick-fix alternative they're proposing. And if they don't, then the political system is going to turn to the people who are offering those quick fixes. That was Vox's Andrew ProCop. Miles Bryan and Dustin DeSoto produced today's show. Jolie Myers is our editor.

Laura Bullard checked the facts and Patrick Boyd engineered. The rest of our team, Hadi, Amina El Sadi, Danielle Hewitt, Kelly Wessinger, Ariana Espudo, David Tatashore, Peter Balan, Rosen, Avashai Artsi, Miranda, Kendi, Astead Herndon, and Sean Ramosferm. We use music by Breakmaster Cylinder. I'm Noelle King. Today explained is distributed by WNYC. The show is a part of the Vox Media Podcast Network, podcast.network, podcast.com. You can listen ad-free by joining our membership program, Vox.com slash members to join.

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