STEVE INSKEEP, HOST:
People observing the administration's economic management include Jason Furman - who was a top economic advisor to President Obama and is now at Harvard. Welcome to the program, sir.
JASON FURMAN: Good to be with you.
INSKEEP: OK, so Scott Horsley talked of the president's shift in language on Jerome Powell, saying the other day his termination cannot come soon enough, then calling him a major loser, then tanking the markets, and then saying he has no intention of firing Jerome Powell. What do you make of that?
FURMAN: It was just all completely unnecessary. Why would you go out and do something like that - add lots and lots of uncertainty to the economy? And, by the way, I'm not positive we're done. He just said he's not going to fire him for now.
INSKEEP: You say there was no reason for it, but I guess in Trump's mind, he was trying to persuade or pressure the Treasury - or pressure the Fed chairman to lower interest rates.
FURMAN: The Fed chair is very independent and there's a good reason for that. No president is going to do a good job at setting interest rates. They're always going to want what's best for the next minute. The Fed needs to think about the next several years. They're pretty good at that, you know? We can all disagree with them. In fact, even if the president wants to express his disagreement, that's not the end of the world. But you don't want a president setting interest rates.
INSKEEP: There is, though, an interesting situation, though, because we have an economy that is under so much pressure because of the president's trade war. And I follow you on X, formerly Twitter. You're very interesting there. And I believe it was just yesterday you tweeted something that I wrote down. You wrote, I guess the optimal monetary policy is to move aggressively to cut rates, to offset the hit, demand and contraction of financial conditions from the president's Fed bashing. I think you're being ironic, but in a way, you're agreeing with the president. There's so much chaos that you ought to lower interest rates.
FURMAN: Yeah, it's not clear what you're supposed to do to interest rates right now 'cause inflation is going to go up. Normally, that says you want to raise interest rates, but unemployment is going to go up, and normally that says you want to cut interest rates. And what's the exact ratio and timing of those two - no one knows. But it is the case that all of this extra uncertainty that comes from the Fed bashing, that comes not from the tariffs but from constantly changing the tariffs, is like a negative demand shock - that does say, you know, you want to put a thumb on the scale for interest rate cuts, but I think it's too soon for the Fed to decide. They need to see the data.
INSKEEP: Is it a weird situation for Jerome Powell, as some analysts have asserted, because if there was some external shock like a war somewhere in the world or a cut off of oil supplies or something, the Fed would just lower interest rates. It'd be very straightforward. Is there some restraint or some problem with him doing that because he's responding to the policy choices of the president of the United States?
FURMAN: I don't think so. I think they're very focused on what the data is. Part of the issue here is the economy was in quite good shape before the tariff war, but we still were a little bit worried about inflation. Some people saw it coming back down to the Fed's target of 2. Other people saw it lingering at maybe 2.7, 2.8%. Inflation expectations were a little bit high. And so the Fed is just really scarred by what we went through with inflation a couple of years ago and doesn't want to get that embedded into the system where it really continues and lasts like it did in the 1970s.
INSKEEP: Let me ask about another player that Scott Horsley mentions - Bessant, the treasury secretary saying to business leaders, this is unsustainable, meaning the incredibly high tariffs with China. Is it strange for the treasury secretary to admit that - that it's unsustainable - when the administration's policy created this situation in the first place and they seem not to have begun any talks to reverse it?
FURMAN: It's all strange. No one knows what their demands are of China. No one knows, you know, what we're trying to achieve. No one knows how we can go to war with all these countries together while thinking that we can keep the focus on China. And no one knows why if you're in the middle of a negotiation, you'd almost give up part of what you were negotiating let alone to say it in private to a bunch of investors when that's really market-sensitive information. So, frankly, none of it makes very much sense to me.
INSKEEP: I have got to ask another question that I think is on the minds of people - the people that are in my life, people that I talk to, people I just run into, random people. The president now says a few words, and the market drops. He then says a few words in the opposite direction, and the market climbs. That's happened again this week. People in my life ask, who's profiting from the constant up and down of the market. As someone who knows how the markets work, do you wonder that?
FURMAN: Yeah. I wonder that, and, you know, there are hedge funds that are making money off this. I mean, you can bet on increased volatility, for example, and make a profit just anytime things move up or down. There are strategies to do that. You can bet on exchange rates. So there are certainly people who can make money in this environment.
INSKEEP: Just about 20 seconds left, but do you assume a recession is coming or would you say it's something short of a recession - just a little less economic growth?
FURMAN: No one knows, but my hope is that we can avoid a recession. Be a lot easier to do that if we dramatically scale back these tariffs.
INSKEEP: Jason Furman of Harvard and the Peterson Institute for International Economics, thanks for your insights. Really appreciate it.
FURMAN: Thank you. Transcript provided by NPR, Copyright NPR.
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