STEVE INSKEEP, HOST:
The cost of borrowing money to buy a car or grow a business - or anything else - could get a little bit cheaper this afternoon.
MICHEL MARTIN, HOST:
Yes. The Federal Reserve is holding its last meeting of the year, and policymakers are expected to lower their benchmark interest rate. The move comes at a time of declining, but still sticky inflation and uncertainty about the incoming Trump administration.
INSKEEP: NPR's Scott Horsley is covering this, as always. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: OK, so I know that Fed governors tend to signal - try to not surprise people and signal what they may be doing. So what do you expect the Fed to do?
HORSLEY: Well, policymakers are expected to lower their benchmark rate by a quarter percentage point this afternoon. That'd be the third rate cut since September, and it would leave interest rates a full percentage point lower than they were back in the summer.
INSKEEP: OK. And I guess we should just remember here - interest rates are linked with inflation. That's the main tool the Fed has for battling inflation. They went up because inflation went up. Now interest rates are going down. Does that mean the battle against inflation is over?
HORSLEY: No. Inflation has come down a lot in the last couple years, but it's still higher than the Fed would like. And, in fact, some of the progress we've been seeing on prices appears to have stalled in the last few months. Fed Governor Chris Waller gave a speech earlier this month where he talked about just how stubborn inflation has proven to be.
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CHRIS WALLER: I feel like an MMA fighter who keeps getting inflation in a chokehold, waiting for it to tap out. Yet it keeps slipping out of my grasp at the last minute.
INSKEEP: (Laughter).
HORSLEY: Waller insisted, though, he and his colleagues are not going to let inflation out of the octagon until prices are completely under control.
INSKEEP: (Laughter) I appreciate the metaphor. Thank you for extending it. But if inflation is that stubborn, why would the Fed cut interest rates again?
HORSLEY: Well, it's a balancing act. You know, high interest rates do help curb inflation, but they can also be a drag on the economy. So the Fed is trying to strike a balance here. Markets are betting the Fed is going to lower interest rates today and then, after that, maybe take a break and see how things play out. Oftentimes, the Fed doesn't have that luxury when it's faced with a sudden collapse in the economy, like the pandemic or the housing crisis, but we're not dealing with a crisis like that right now. You know, the overall economy's still strong. The job market's holding up pretty well. So Fed Chairman Jerome Powell said he and his colleagues can afford to take their time.
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JEROME POWELL: The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we're currently seeing in the economy gives us the ability to approach our decisions carefully.
HORSLEY: One thing a lot of people will be watching this afternoon is the forecast that Fed policymakers offer about where they think interest rates are going to go next year. Back in September, they were projecting that rates would fall by another full percentage point in 2025. We'll see if they dial that back.
INSKEEP: When you say the word forecast, of course, we're talking about a change in presidential administrations, a big change in some big economic policies or policies that relate to the economy. How is the Fed preparing for that?
HORSLEY: (Laughter) Carefully. You know, economists say some of the president-elect's policies, like tariffs and mass deportations, could actually make inflation worse. Powell has said it's too early to make any predictions about that. Keep in mind Trump was often critical of Powell the last time he was in the White House. So Powell has tried hard not to provoke the incoming president, but he's also insisted Trump doesn't have the authority to fire him. And when Trump was asked about that on "Meet The Press," he appeared to accept that Powell's going to stick around for a while.
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KRISTEN WELKER: Will you try to replace Jerome Powell?
DONALD TRUMP: No, I don't think so. I don't see it.
HORSLEY: Now, Powell's term as chairman expires, though, in 2026. And at that point, Trump may have the opportunity to install a more malleable leader at the central bank.
INSKEEP: I suppose by then we'll have some idea of what economic effect Trump's policies will have had - which ones he succeeded in imposing, how he did that and what the effect is on inflation.
HORSLEY: We'll be watching.
INSKEEP: NPR's Scott Horsley, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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