SCOTT SIMON, HOST:
It's not easy being a central banker trying to steer the economy through rough seas. Federal Reserve Chairman Jerome Powell once likened it to navigating by stars under cloudy skies. Friday's jobs report didn't provide much of a break in those clouds. The Fed's immediate challenge is deciding how aggressive they need to be in cutting interest rates. NPR's Scott Horsley joins us. Scott, thanks for being with us.
SCOTT HORSLEY, BYLINE: Good morning, Scott.
SIMON: The Fed was hoping that this report would provide some clear navigational beacons. Did it?
HORSLEY: I'm afraid the skies are still at least partly cloudy or partly sunny. Take your pick. The jobs report showed that employers added 142,000 jobs last month, which is more than the previous month, but fewer jobs than we've seen on average over the last year. The unemployment rate dropped a bit to 4.2%, which is encouraging, but unemployment is still about a half-percentage point higher than it was at the beginning of this year.
On balance, this looks like a job market that is slowing down but not stalling out, at least not yet. Princeton economist Alan Blinder, who used to be vice chair of the Federal Reserve, says that's probably about what the current Chairman Powell is hoping for, as he and his colleagues try to engineer a soft landing with low inflation and no big spike in unemployment.
ALAN BLINDER: People often emphasize the soft part of soft landing and forget about the landing part. You need to slow down.
HORSLEY: Powell has said he and his colleagues don't want to see any further slowing in the job market, which is why the central bank is about to start cutting interest rates in less than two weeks.
SIMON: The Fed moved pretty aggressively when it started raising interest rates to try to fight inflation. We're going to see something similar when rates begin to come down?
HORSLEY: Yeah, that's been the big question for economists and financial markets. How big is this first rate cut going to be? In normal times, the central bank likes to adjust interest rates kind of gradually, just a quarter-percentage point at a time. But when the situation calls for it, the central bank can move more swiftly.
That's why Friday's jobs report is a little bit of a head-scratcher. It shows a job market that's not so weak, you definitely need a supersized interest rate cut, but not so strong you feel 100% confident with a smaller cut. Fed policymakers like to say they're data driven, but in this case, the data is not all driving in a straight line. Blinder says that's not all that unusual, and it could lead to some disagreement when the rate-setting committee meets in a couple of weeks.
BLINDER: Different people will process the information in different ways and come to different conclusions about what the committee should do.
HORSLEY: Blinder says it's going to be up to Powell to corral those differing viewpoints, something the Fed chairman has been very successful at so far. Right now, investors are betting the Fed will start with a smaller quarter-point rate cut, but those bets have been changing day by day and sometimes hour by hour.
SIMON: What would falling interest rates mean for people trying to borrow money?
HORSLEY: Yeah, borrowing costs are pretty clearly going to go down, whether they go down gradually or not. Fed governor Chris Waller said yesterday, this first rate cut probably won't be the last. In a few months, Blinder says the size of this initial rate cut will probably not make all that much difference.
CHRIS WALLER: Regardless of whether they move by 25 basis points or 50 basis points, I fully expect and the markets fully expect a series of cuts bringing the funds rate down substantially, eventually, but not in a week.
HORSLEY: That's good news for anyone trying to finance a business or get a car loan or just carrying a balance on their credit card. We've also seen a pretty significant drop in mortgage rates for anyone who's out house hunting this weekend. Freddie Mac says the average rate on a 30-year home loan has dropped to about 6 1/3% from more than 7% this time last year. Of course, for people with money in the bank who've been enjoying higher interest rates on their savings, that's about to change as well.
SIMON: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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