AYESHA RASCOE, HOST:
Let's talk about the economy. Last week was big. On Wednesday, the Federal Reserve voted to keep interest rates steady for the fifth time in a row. On Friday, the Bureau of Labor Statistics published the July Jobs Report, and it was not good - just 73,000 new jobs, well below expectations. President Trump then fired the BLS commissioner. And all of this against the backdrop of Trump's tariffs deadline. Economist Mary Lovely of the Peterson Institute for International Economics joins us now to break it all down. Good morning.
MARY LOVELY: Good morning.
RASCOE: So let's start with the July jobs report. As we said, it's not great. But the Bureau of Labor Statistics also revised down previous numbers for May and June by a whopping 258,000 jobs. What does this tell us about the overall health of the U.S. economy?
LOVELY: Yeah, this was a big, big revision and obviously one that caught the attention of the U.S. president. We need more than 100,000 - Some people would estimate upward of 180,000 a month - to kind of break even, to get jobs for new entrants and people who are just joining us in the labor force. So this number is a sign that the economy is slowing and that the unemployment rate was - is starting to - will start to tick up. So I think that is a sign that President Trump's tariffs are starting to have an effect on the economy. And obviously, that did not please him.
RASCOE: Well, the Fed voted to keep interest rates the same. But for the first time in over three decades, two members of the Board of Governors dissented, saying that they would have cut rates, and another board member resigned on Friday. All of this comes as President Trump has been explicitly calling for a rate cut and threatening to fire Chair Jerome Powell. What's your takeaway from all of this?
LOVELY: Well, you know, the Federal Reserve has a very difficult job to do, especially now. They have a dual mandate of maintaining employment and also maintaining price stability. And what we're looking at and what economists have been warning is that we are likely to be headed toward a period of stagflation, so higher inflation and higher unemployment.
So the Fed is in - you know, between a rock and a hard place. How does it come down? It's watching the numbers very carefully. It's not that surprising that there was some dissent. Of course, the board has been more politicized lately. There are those whose - who, you know, want lower interest rates to follow President Trump's request. But, you know, basically, this is a difficult job, and they're looking to see where the economy is going, so we'll all be watching very carefully when next month's numbers come out.
RASCOE: Is there a disconnect between President Trump's desire for, you know, booming jobs reports and interest rate cuts, right? Doesn't - like, a weaker jobs report makes it more likely that the Fed may cut rates. Like, is - so is there a disconnect there?
LOVELY: No, that would be fine. The problem is, of course, at the same time, we're getting upward pressure on prices. We saw higher core inflation in the last monthly report. We know that these tariffs really haven't even begun to hit yet. They've been on pause. President Trump has not decided what the rates will be. Even now, the rates will apply to goods that land in the United States in the beginning of October.
So there's a lull. Manufacturers, retailers, have inventories already in. So as the Fed looks ahead - and they have to look ahead - they're going to see there's these big price pressures coming that are going to push up the inflation rate. Cutting rate now might not be the right thing to do.
RASCOE: Well, speaking of those trade agreements, obviously, the president has announced some, although many details remain unknown, with some of the U.S.'s biggest trading partners - the EU, Japan, South Korea. But the two biggest trading partners - Mexico and Canada - still have no deals in place. What did we learn about what's going on with that, and what's likely to be their impact for consumers?
LOVELY: Well, these are our biggest trading partners. So the impact of any tariff increases are going to be higher prices and also less variety, fewer items coming into the United States. So that's what consumers have in store for them. I think it's a misnomer to call these trade agreements. In some sense, they're a bit of a shakedown of our trading partners. There's no attempt for a win-win here. The idea is that the president believes that U.S. has been taken advantage of, and therefore, these companies have to give us something. And that's what's been happening. So we see these high tariff rates coming. They're going to affect the price level. And if we have high rates on Canada and Mexico, that's - that will add even more pressure to the prices because they're our biggest trading partners.
RASCOE: And what about China? What are you watching for there - the world's biggest exporter?
LOVELY: Well, we're watching to see whether there'll be a deal. The Chinese have shown they have some, you know, tools to use against the United States, such as export controls on rare earths. So, we think that there's a deal. We see the president moderating his approach to export controls and doing other things that suggests that there may be some type of agreement. It clearly will include tariffs, but how much and how far and whether we get - we'll probably get some purchases and other things out of it. But we're looking to see how long it will take for there to be some sort of stability added back to the relationship.
RASCOE: That's Mary Lovely, senior fellow at the Peterson Institute for International Economics. Thank you so much.
LOVELY: You're welcome. Transcript provided by NPR, Copyright NPR.
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