Title: The Fed's Interest Rate Decision, a Tariff Deadline and a New Jobs Report

[MUSIC]

Brian: Brian Lehrer on WNYC. Now we'll talk about three big pieces of economic news breaking in the last couple of days and what they mean for the future and the present of the US economy. This morning's jobs report, remember they release on the first Friday of each month, the number of jobs created or lost in the previous month, so this is Friday, August 1st, and the jobs report for July, just out, shows 73,000 jobs were added in the month, well below expectations, and the unemployment rate ticked up to 4.2%. Also, job growth from earlier this year was revised sharply downward, as they do a few months after the initial estimates each time.

Meanwhile, the Federal Reserve, as you probably heard this week, is holding interest rates steady for the fifth straight meeting, despite mounting pressure from President Trump, who's been publicly attacking Fed Chair Jerome Powell and calling for rates to be cut. Starting today, Trump's latest round of tariffs is set to kick in. He had been advertising August 1st, remember, as he previously advertised April 2nd. There is today, August 1st, a mix of delays, partial deals, and one-way tariffs, raising import taxes on goods from dozens of countries.

The administration says it's about protecting American workers and rebalancing global trade, but so many economists warn the tariffs could hurt businesses, raise prices, and weaken US growth. What does all of this add up to, and where might the economy be headed? Joining us now is New Yorker staff writer John Cassidy, who's been reporting on the Fed, the job market, and Trump's tariff gamble. He also has a recent book about capitalism and its critics that he was on for. John, welcome back to WNYC.

John: Hi, Brian. Thanks very much for inviting me back on.

Brian: I want to start with the new news this morning: the jobs report, 73,000 jobs added in July, unemployment up a little to 4.2%, and major downward revisions on jobs to previous months. What do you take away from it?

John: I think this is a very significant jobs report, probably the most significant one of the year, because for months now, we've all been waiting to see if Trump's tariffs would impact the economy or how they would impact the economy. Lots of economists have been suggesting that it would eventually lead to lower hiring and lower GDP growth because firms, A, their costs are increasing, B, there's been a lot of uncertainty associated with the rollout of the tariffs, a new tariff announcement every day or every month, it seems.

This jobs report does seem to show that the economy is slowing. Job growth has certainly slowed. The figure for July, the 73,000 you mentioned, was significant in that it was lower than expectations. The real news here was the downward revisions for May and June. The jobs report is just a preliminary figure based on surveys carried out by the government, and they keep surveying as time goes on and look back at the previous reports and revise them as new information about actual hirings by specific firms comes in.

What the revisions this month show is that in May and June, there was virtually no new hiring in the economy. The figure for May was only 19,000, and in June, it was only 14,000. That's what's really shocked economists and Wall Street, I think, the extent of the slowdown in the economy over the summer.

Brian: How clearly can you link that to the tariffs?

John: In economics, nothing is ever absolutely certain, but it's certainly happening at the same time. I think if you look at the sort of sectors of the economy in which job growth is slowing, there seems to be a clear link. The whole point of Trump's tariffs, if you listen to White House economists, is he's going to revive American manufacturing and revive manufacturing employment. Actually, over the past three months, manufacturing employment has fell every month. There seems to be a link there.

What has been propping up the overall figures for a while is hiring by the federal government and state and local governments, which has been reasonably strong, but that fell in this month, too. Obviously, that's not directly linked to tariffs, but it's been masking what's been happening in the private sector, I think. I think most economists would say that there is a pretty clear link between government policy and hiring, is that there are long lags. As I said, for months, we've been waiting for the shoe to drop here, and it looks like it finally is.

Brian: Listeners, you can help us report this story. Have Trump's tariffs affected your business, your job, your cost of living? How are you bracing for these new tariffs? We can take your calls or questions on the other economic stories, the new underwhelming jobs report, and Trump's fuss with the Fed. You can state an opinion if you think that interest rates should be held steady or go down. 212-433-WNYC, 212-433-9692 for John Cassidy from The New Yorker, call or text.

All right. Let's go on to the Fed. They kept rates steady for a fifth straight meeting. Their next meeting is in September. There was some dissent, which is unusual, by two members of the Fed who thought there should be a rate cut. What does that tell us about the divisions inside the Fed right now or even beyond that? I wonder just how you, as an economics reporter, see the strength of the arguments for holding rates steady versus cutting them right now in pursuit of growth.

John: I think, obviously, the Fed didn't have this employment report in its hand, or the Fed policy members didn't have this employment report in its hand when it made the decision earlier this week. If it had seen this report, there may have been more members on the committee who were willing to reduce rates by at least a quarter point, which is what the dissenters wanted. Powell, in his press conference, made clear that the Fed is basically on hold for more data about how tariffs are impacting the economy.

This is one of the first big pieces of data suggesting that they are harming the economy. The Fed will now wait for another month. It's got for next month's employment report to see how that is. If it confirms that hiring has slowed and virtually stopped in large sectors of the economy, I think the Fed will definitely reduce rates in September. That won't be quick enough for Trump, of course. He's already on the Internet attacking Powell after the job figures came out this morning, saying he's a disaster. If there was a bit of a rapprochement between Trump and Powell last week when Trump said he wouldn't fire him after all, I think these job figures are going to revive the row.

Brian: Would interest rate cuts, in your experience, be relevant to the kind of inflation that tariffs might cause? It's usually, I think, from an overheated economy, like too much growth, too much optimism, in a way, that causes then prices to go up that the Fed has responded to historically with interest rate cuts to kind of slow down how much business is trying to grow. Does that relate to this? I'm not sure the interest rates--

John: Sorry, Brian.

Brian: No, go ahead.

John: The Fed has got two different mandates. One is to keep prices steady, bring down inflation, and the other is to maximize employment in the economy and keep the economy healthy. In this case, the two mandates are clashing because tariffs are raising prices. That's becoming increasingly clear. Big companies like Procter & Gamble and Walmart have announced that they're going to be raising prices or have already started raising prices because their import costs, the cost of their materials, or the cost of the manufacturer board and bring-in have gone up because tariffs are a tax on imports.

The inflation pressures are rising at the same time that it looks like, given this jobs report, the labor market is weakening. That raises a specter of an old word, stagflation, when inflation and unemployment go up together, which we had in the 1970s. The Fed is in a bit of a bind at the moment, and that's why it's basically put things on hold to wait until things become clearer. I think by the time the September meeting comes about, especially if there's another weak jobs report for next month or for this month, which will come out next month, it'll be under huge pressure to cut rates in September.

Now, will a quarter-point cut in the interest rate make a huge impact on the economy immediately? Probably not. Monetary policy takes quite a long time to feed through to other parts of the economy, but it would lead to changing in certain other interest rates in the economy. I think the White House is particularly keen to get mortgage rates down to try and get the housing market going. The housing market has basically stalled because a lot of people would like to move, but they can't afford to buy a new house because of high prices and high mortgage rates. The White House's argument is that if the Fed reduces interest rates, they'll help bring down mortgage rates and help stimulate the housing market, which is a big part of the modern economy.

Brian: Which is true, as far as that goes, about housing rates, right?

John: No, no, yes, that's certainly true that interest rates affects mortgage rates, and mortgage rates affect the housing market, and the housing market affects the economy. Sure, that's certainly true. As I said, the argument on the other side has been that, until recently, as Powell said, the economy looked healthy, the labor market looked healthy. Unemployment, even at 4.2%, which it went up to today from 4.1%, that's still a pretty low rate historically.

Most people who want jobs have got jobs, so it's not an immediate economic crisis here, but it does look like the job growth and the economy is slowing. We already saw that to some extent in the GDP figures. GDP has slowed over the first half of the year, but it hadn't showed up to a great extent in the labor market, but now it seems to be doing so.

Brian: Here's a tiny economic indicator in a text. It says, "Last month, I went to the 99 Cents store to buy wrapping paper and bows for a bridal shower gift. The bow selection was underwhelming. When I mentioned that, the store blamed the lack of choice on tariffs." That's from one listener. Another listener on the jobs report asks, "How can anyone expect job growth if the federal government has fired thousands of civil servants and thousands of immigrants have been locked up in detention?" Is it accounted for in the jobs report? Or let me ask, how much of the slowdown in employment is the firing of so many federal workers? Does that move the needle as a percentage of jobs?

John: It does. It's not clear. The jobs report doesn't break down federal hiring into people who've been fired because of the DOGE cuts or people who've been fired for other reasons or hired or fired. It just gives you an overall figure for federal hiring. As I said, until last month, that's surprisingly, given all the DOGE job cuts had held up pretty well. This month, federal hiring fell, and that may well be the DOGE cuts finally showing up, finally showing up in the figures.

One of the big issues facing all policymakers and people right about the economy, like me, is that you get these big headlines about DOGE job cuts, about Trump's tariffs, et cetera.

There's always a lag between these big news events and it actually showing up in economic figures that policymakers rely on. As I said, to repeat myself, that's where we've been for the last few months, seeing when the shoe will drop on these Trump policies.

I think the significance of this week, with all these data announcement, is that we now have a much clearer read or a considerably clearer read on how the economy is reacting to what you might call Trumponomics and how it is impacting the economy overall, not individual firms. As you say, we've always already had a lot of data on how individual consumers and individual firms are seeing higher prices and reacting to them. Now it's feeding through to the economy-wide level.

Brian: Bernadette in Dix Hills, you're on WNYC. Hi, Bernadette.

Bernadette: Hi. Can you hear me?

Brian: I can. You're on the air. Hello.

Bernadette: Thanks for taking my call. First time caller, long time listener. I am retired now from the company I'm going to talk about, but I am in contact with people that still work there. It's a manufacturing company in accessories, and they import everything from China. What happened with the tariffs when he slapped the 145% tariff, they let go of a lot of their designers and workers, and they cut back the salary of the people that they kept on. That's not talked about.

Also, now I'm finding out that instead of using American designers, they're hiring Chinese designers that will save them money, too. Those are two things that are not talked about. They talk about the big companies and everything like that, and how it affects jobs, but it affects all these designers that are working in Manhattan.

Brian: Thank you very much for that anecdote. Does that company's experience, as Bernadette describes it, sound like something you're hearing as a trend, John?

John: Yes, it certainly resonates with me. A couple of months ago, I wrote a piece about a sizable family-owned company in Illinois, a toy maker, which, similar to the company just mentioned, imported almost all of the toys it sells from China. The tariffs are obviously a huge shock to this company, which is now actually trying to sue to block the tariffs. That's another issue which is coming up this week. Sure, it's had a huge impact.

The owner of the company told me that the first thing he did when the tariffs were introduced was cancel plans to build a new warehouse and hire new workers to staff it. On the micro level, on the ground level, we've been seeing for months the impact the tariffs is having on certain businesses, especially businesses heavily exposed to international trade and the trading system. As I said, what's new here is that we can now see that, or we think we can see it, at the aggregate economy-wide level.

I think that's going to change the economic debate, and I think it's also going to change the political debate about Trumponomics, because the White House has been claiming and still claiming that there's not going to be any real costs for tariffs. In fact, to the contrary, they're going to unleash a new golden era, which is what Trump is saying every day on social media. It's a lot harder to make that case today, I think, than it was a week ago.

Brian: When there didn't seem to be, at least by the statistics, a lot of national economic impact. They were saying, "See, we told you this is not going to hurt as we make this adjustment to a new economy." Now it's starting to look like it is hurting in measurable ways. Let's talk about these tariffs being imposed today, this big August 1st tariff deadline for other countries to make a deal. It's such a mix. Maybe I'm going to give a few of the stats that I've been reading and hearing this morning, and you can start to tell us what to make of the big picture.

Canada, tariffs go up from the current 25% to 35%. Taiwan, with lots of semiconductors, the computer chips that come here, 20% tariffs, is what I read. Mexico gets a 90-day reprieve while they continue to negotiate. Mexico, I think, is the US's single largest trading partner. There's China, which is a huge thing, but they haven't landed one way or another with China. Also, India. CNN reported that the overall average tariff is now 17% compared to about 2% when Trump took office. How do you start to put this all together, or is there one country or another from today's news that really jumps out at you that you would like to discuss individually?

John: That's a very good question, Brian. Obviously, the rollout of this policy has been incredibly chaotic, and it's just hard to track. Basically, what the Trump administration has done is lumped foreign countries into three boxes. There are certain countries that it's made individual trade deals with. The EU announced last week 15%, Japan before that 15%. They get tailored deals with the US. There's a whole bunch of other ones, in fact, most of the rest of the world, where there haven't been any deals made, because if you remember, Trump originally announced these tariffs at the White House on April 2nd, when he called it Liberation Day.

Then the markets panicked and Trump backtracked and said, "Okay, we'll suspend them for a couple of months to try and reach deals with these countries." That's just too short a time for one thing to reach deals with every other country in the world. The second bunch of countries, which is they basically just slapped on a list of tariffs, which was announced yesterday, which very similar to the April tariffs. Then there's a third set of countries, a small set, which is in the to be determined category. That includes Mexico and Canada, our two closest trading partners, where basically the administration is still trying to bully them into submission. It's a very complicated picture.

Another thing which struck me about this is how petty some of these tariffs are. The poverty-stricken countries in Africa, like Chad and Lesotho, they have trade deficit with the US, but that's largely because they don't produce really anything to export. They've been hit with tariffs of 15%. Countries which have terrible history with the United States, like Iraq and Laos, they've been hit with tariffs of-- Iraq's got a 35% tariff, Laos has got a 40% tariff. Countries which the US has been trying to make much closer relationships, like India, 25%.

I interviewed a former EU official for a story I'm writing for The New Yorker this week, and he basically just argued, "Look, this is a complete regime change in the US. We've gone from the US as a promoter of open trade and the guarantor of the trading system to the US as basically a coercive force in the world, which just uses the principle of might is right and just dictates--"

Brian: Not only over trade. Didn't he put a 50% tariff on Brazil, from which we get a lot of coffee, I believe, to support the Trumpy former right-wing President Bolsonaro there, who's been charged with a crime?

John: Brazil is one of the countries which has actively resisted American demands, and its president has said that Brazil is going to follow its own way. At the same time, Brazilian government has indicted Bolsonaro, the former strongman and friend of Trump, for trying to organize a coup. Trump, of course, didn't like that, so as you say, he's gone and slapped a 50% tariff on Brazilian goods. Not all of them. They've exempted a couple, which the United States particularly needs, like aircraft and iron ore. We're heavily dependent on both of those things. It does apply to other things which Brazil makes, which, as you said, include coffee. That's a very vindictive and personalized policy.

That's one of the great changes here. The US used to live by a system of rules which applied to every country. That was the basis of the post-war trading system. You had a rule for one country, then as long as other countries followed the rules, it applied to them too. Trump has substituted for that a completely arbitrary system in which everybody is basically beholden to him and the US government, and they have to try and negotiate a deal if they can on their own behalf. It's a very coercive and some would say extortionary system we've moved to.

Brian: Listener writes, "Maybe there's no answer to this, but if Trump wants to bring back American manufacturing, why is he imposing tariffs on input materials like lumber and copper? Surely that makes it harder to manufacture goods in the United States." Here's a related comment from Tyra in Richmond Hill, I believe, coming in on the phones. Tyra, you're on WNYC. Hi.

Tyra: Hi, Brian. Good morning. I have a lot of friends that were shopping for houses, and they put it on hold because most people, when they buy houses, they do some sort of renovation. Because of tariff and lumber prices going up and stuff, and most of them come from Canada, they hold off on buying houses because it will cost them a lot more money to do renovation on those houses.

Brian: Thank you very much. Not just interest rates, pushing up the cost of housing, but the tariffs for those materials, just like the texter, John, that I read from, that if he's imposing tariffs on input materials, then it becomes harder to make the finished product in the United States.

John: No, that's certainly true. When we think about imports, we usually think about toys and clothes or whatever from China and Vietnam, but actually, a huge part of the trade deficit is, as you say, for imported components, including lumber and screws, and things like that, and steel. There's a 50% tariff on steel, which is actually going to hurt the US car manufacturers that Trump is supposed to be trying to help. Even if you make cars in the United States, a lot of the components and the steel for it is imported, and Trump's raising the costs of that.

There's even a possibility, given the steel tariffs, that it could end up helping foreign car companies, because if your country is subject to a 15% tariff, say, like Europe or the European car makers, and American car makers are paying a 50% bill on their steel imports, it's not clear that the new system benefits Americans over the Europeans. In fact, there are reports out of Germany that BMW and Porsche were actually lobbying for the EU to accept this new deal because it would benefit them relative to the alternatives. There's all sorts of complications and contradictions in these Trump [inaudible 00:24:23]. As I said, they're now becoming more evident.

Brian: We've got about two minutes. I want to try to touch two other things real quick. One is, I was curious about some of these deals involving agreements to invest in the United States. Like with Europe, we now have these 15% reciprocal tariffs. If the tariffs are the same going each way, why don't they just make it zero going each way? That's one question. Also, Europe, that deal, and some other countries aren't just agreeing to percentage rates of tariffs. They're also promising to spend or invest certain amounts of money in the US and to buy certain amounts of US products. Is that unusual?

John: It's very unusual, complete departure from previous trade agreements to insist on investments. It really is. I said that the policies have got a sort of extortion element. This really does seem to be along those lines. Both Japan and the EU have promised to invest hundreds of billions of dollars in US companies or US projects. Now, it's not at all clear that that can be enforced. There's some skepticism around the world whether it'll ever actually happened.

It's another example of Trump basically demanding money from people. He's adopting the same reproach to foreign countries that he's adopted to American universities and media companies. If you want to get along well in the Trump world, the Trump economy, you basically have to stump up and make [crosstalk]

Brian: I get your point. Last question. We talked about some of these indicators coming out, today's jobs report, the interest rates, yesterday, the tariffs. The Wall Street Journal has an article called The Weirdest GDP Report Ever. GDP, gross domestic product, that's the growth of the overall economy. That one came out on Wednesday. It hasn't made as much news, but the journal calls it the weirdest GDP report ever. It says the economy grew 3%, decent number, but mainly because imports collapsed. Alas, it says investment fell, too. Now that we've confused everybody one more time before the end of the segment, do you agree about the weirding of the economy and growing 3% because imports collapsed? Explain that in 30 seconds, if you can.

John: Basically, what has happened is the tariffs have distorted the figures enormously, the GDP figures, because imports get subtracted from GDP, because GDP, gross domestic products, is measure of things made in the United States. If you import a car or a steel rod or a new toy from China, for example, or Europe or wherever, that doesn't get counted in GDP. If imports go up, arithmetically, GDP will fall. Now, what happened in the first half of the year is in the first three months, American businesses and consumers rushed to beat the Trump tariffs by massively increasing their orders for imports.

Firms were trying to get in the materials. My teenagers were trying to get cheap clothes from China before the tariff deadline. What that translated to was actually a fall in GDP in the first quarter, negative GDP growth, which seems to be like a recession, but actually wasn't. It was a product of a surge in imports. In the second quarter, that process completely reversed itself and imports fell sharply, which translated arithmetically into a rise in GDP. Now, it's all very confusing.

The best way to deal with that is to put the two figures together, which will eliminate the distortions. If you do that, what you see is in the first half of the year, GDP grew at about 1.3%, which is down quite a lot from the 2.8% in 2024. That's probably the truest measure of how the economy has done in the first six months. It shows that there has been a considerable slowdown under Trump compared to the last year of Biden.

Brian: As we end with that indicator of the weirdest GDP report ever, we thank John Cassidy, who writes about the economy for The New Yorker and is author of the book for which he was on for a book interview earlier in the year, Capitalism and Its Critics: A History: From the Industrial Revolution to AI. John, thanks a lot for today.

John: Thanks very much again for inviting me on any time.

Copyright © 2025 New York Public Radio. All rights reserved. Visit our website terms of use at www.wnyc.org for further information.

New York Public Radio transcripts are created on a rush deadline, often by contractors. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of New York Public Radio’s programming is the audio record.