A cast of hawkish central bankers

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Kai Ryssdal (0:54)

Well, ladies and gentlemen, let me just say, it is going to be a week from American Public Media. This is Marketplace.

In Los Angeles, I'm Kyle Rizdahl. It is Monday today. This one is the 14th day of September. If you can believe it, good as always to have you along, everybody.

All right, well, let's see. Shall we wear things stand as we roll toward the last quarter of this year? Borrowing costs are up. Energy costs are up and related as we learned last week. Inflation is still up. The stock market is a little bit dyspeptic. Consumers the same. So as we tee up what is going to be a big week in this economy, we've called Wendy Edelberg for some insight. She's a senior fellow at the Brookings Institution. Hey, Wendy.

Wendy Edelberg (1:51)

Hey there, Kai.

Kai Ryssdal (1:52)

So let's get a little ground truth here just as a way to get going. Your general thoughts on the state of this economy as we sit here in mid-September.

Wendy Edelberg (2:03)

I mean, policy is doing its best to derail it, that's for sure. But it has remained resilient.

Kai Ryssdal (2:13)

You say resilient like it's a dirty word.

Wendy Edelberg (2:17)

I mean, I think markets have been, and businesses have been assuming that surely President Trump will be disciplined by what he knows would be the economic effects if he was too irresponsible with the war in Iran, if he was too irresponsible with tariffs. I think you're seeing some glitches in market prices as like that theory is being tested. And so, resilient, yes, but I think the trade war with Canada, I think the stepped up hostilities with Iran, with no sense of how that ends.

Yeah, I think he's testing the resilience.

Kai Ryssdal (3:04)

I hate to be hung up on your vocabulary here, but your use of the word disciplined is interesting in regards to the president, because you and I have literally had the conversation before about how the bond market was going to discipline the president and keep him sort of within the lines, as it were, of a productive and functioning economy.

And clearly, that's not the case. We've got the tenure this morning topping 5%, the 30 year was it like 5.3 or something. So the bond market is having none of it.

Wendy Edelberg (3:32)

I mean, I think they are paying, I know they are paying very close attention, the Trump administration is paying very close attention to the level of interest rates. I think that explains why Besant is trying so hard just to get them down. It's a game of basis points that he's playing.

Kai Ryssdal (3:48)

Right, hundreds of a percentage point for laypeople.

Wendy Edelberg (3:51)

Yes, hundreds of a percentage points, yes, sorry. So they are paying close attention, which suggests that it's affecting their decisions in some way. But I don't think that actions by the Trump administration or by Congress are the sole reason that interest rates are where they are. I think that there's a whole lot of borrowing going on by tech firms.

Kai Ryssdal (4:15)

Yeah, yeah, so we're going to get to that a little later in the program. Do me a favor, would you, and with an eye toward the calendar, which is to say that the Federal Reserve meets tomorrow and Wednesday, channel your inner Kevin Warsh for me.

And as he heads into this meeting, where he's either going to have to disappoint the market if he doesn't raise rates, and he has the choice of disappointing the president who appointed him if he does raise rates, what do you suppose is going through his mind right now?

Wendy Edelberg (4:45)

I mean, yes, he's in a tough spot. His Jackson Hole speech was quite hawkish. But my guess is that he would like to avoid a hike. I mean, he talked about, my sense before he got the job is that he was talking about how he thought interest rates generally should be lower given structural things happen in the economy.