TPS cuts will tear through the labor market

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**Kyle Rizdal** (0:32)
The Federal Reserve meets this week. What are they going to do on interest rates? Yeah, wouldn't you like to know?
From American Public Media, this is Marketplace.
In Los Angeles, I'm Kyle Rizdall. It is Monday today, the 27th day of July. Good as it always is to have you along, everybody. Here with Wednesday's news today. At 2 in the afternoon, two days from now, the Federal Open Market Committee is going to release its announcement on interest rates. Expectations are, based on basically zero evidence, as I'll get into in a minute, that the central bank is going to hold rates steady. We, the Fed watching members of the business and economic journalism community, don't have much evidence because, as you have heard here and elsewhere, Chairman Warsh is a good deal less loquacious than his predecessor. Most particularly, Warsh has scrapped what's known as forward guidance. The Fed gave me as a hint, a really, really good hint of what it is going to do before it does it. But you know what? Even if the Fed is staying mum on its rate projections, markets get a vote. Marketplace's Justin Hill made some calls so we could do some forward guidance of our own.

**Justin Hill** (1:56)
Even though the Fed's probably going to hold rates steady this week, markets are thinking that the Fed will hike rates at its September meeting, says Randy Vogel, head of fixed income with Wilmington Trust.

**Randy Vogel** (2:05)
If the Fed sees that inflation data moving higher instead of lower, then the probability that they take action in September, I think, is pretty high.

**Justin Hill** (2:15)
Vogel says at the Fed's last meeting, Chairman Kevin Warsh made it clear that keeping inflation contained is his primary objective.

**Randy Vogel** (2:22)
So we put much more focus on inflation than the labor market.

**Justin Hill** (2:28)
But Vogel says the Fed could also hold rates steady. Winnie Caesar, global head of strategy at CreditSite, says she doesn't expect the Fed to hike rates until at least early next year, because there's too much we don't know about the economy right now.

**Winnie Caesar** (2:40)
So long as we have the Middle East conflict going on, new rounds of tariffs, AI disruption, especially as it relates to the labor market, it makes it really difficult to get a clear picture of what appropriate policy should be.

**Justin Hill** (2:54)
Caesar says if the war in the Middle East settles down by next year, inflation could cool off.

**Winnie Caesar** (2:59)
And that is really what's going to determine the path of energy prices and then de facto the path of inflation.

**Justin Hill** (3:07)
There are plenty of other factors that could bring down inflation, says Bernard Yeros, lead US economist at Oxford Economics.

**Bernard Yeros** (3:14)
A labor market that is not overheating, that's not a source of inflation, weak inflation on the housing side, so a lot of rent, of shelter prices remaining relatively subdued.

**Justin Hill** (3:25)
Yeros says he expects the Fed to hold rates steady until September of next year. That's because even if oil prices remain high or go even higher, consumers might cut back.

**Bernard Yeros** (3:35)
Because you don't have those tax refunds going out the door, you have already a very low savings rate, consumers would just be in a tougher position.

**Justin Hill** (3:44)
And if consumers pull back, the economy would slow down, and the Fed might go from holding rates steady to cutting them. I'm Justin Ho from Marketplace.

**Kyle Rizdal** (3:53)
Wall Street today, this being a Monday, you'd be right if you'd have figured there had been some kind of news over the weekend about a ceasefire and negotiations and lather, rinse, repeat. Oil traders sure bought it, equity markets less so, bond traders, they couldn't decide. We'll have the details when we do the numbers.
You know how we've been saying for a very long time now that consumers in this economy are displeased, and that businesses, if not displeased, then certainly uneasy about the state of things? Well, hold that thought, because a survey from the National Association for Business Economics this morning says businesses are actually doing better. Compared to the first quarter of the year, businesses said sales improved in Q2, that they are able on average to raise their prices, and that generally their operations are more efficient. And I know what you're thinking. There's the war in the Middle East, the seesawing price of fuel and other critical inputs, there's inflation, there is everything. Marketplace's Kaylee Wells unpacks that a little bit.