A MARTÍNEZ, HOST:
The Federal Reserve has two big jobs - fighting inflation while also keeping a lid on unemployment. That could be especially challenging right now as a result of President Trump's trade war. As its rate-setting committee wraps its two-day meeting today, the Fed is expected to do nothing. NPR's Scott Horsley explains.
SCOTT HORSLEY, BYLINE: The Fed's main tool for fighting inflation and unemployment is to adjust interest rates. When prices are climbing too fast, the central bank raises rates to tamp down demand and bring inflation under control. When unemployment's going up, the Fed lowers rates to goose the economy and put people back to work. But what to do in the face of a trade war that threatens to drive up prices and unemployment at the same time?
MARK ZANDI: Oh, my gosh. They're literally between the rock and the hard place. What do you do with this?
HORSLEY: Economist Mark Zandi of Moody's Analytics says President Trump's tariffs could be a double whammy for both the economy and the central bank.
ZANDI: These tariffs mean higher inflation, no doubt about it. That argues for higher rates. And then this is going to hurt growth. We're talking recession. That means lower rates. So what do you do with that? And you really don't know where policy is headed.
HORSLEY: For now, Fed policymakers are expected to hold rates steady, where they've been since the end of last year. That's despite President Trump's frequent demand for lower interest rates. Inflation is still a little higher than the Fed would like, making a rate cut unlikely for now. And so far at least, the job market is looking OK. All that could change if the trade war drags on. Fed policymakers will have another chance to adjust interest rates next month.
Scott Horsley, NPR News, Washington.
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