Why the Fed is trapped by inflation

0:02Michael Astrue:WBUR Podcasts, Boston. The conversation isn't going to be around cutting, I don't think. I don't think they're going to do anything about raising rates at the meeting coming up. But they have to have that conversation and start that conversation.

0:17Loretta Mester:With inflation roaring above 4%, don't expect lower interest rates anytime soon.

0:33Loretta Mester:It's Wednesday, June 10th, and this is Here and Now Anytime from NPR and WBR. I'm Chris Bentley. Today on the show, Social Security will start running out of money by 2032 unless Congress acts. But a former administrator of the agency in charge of the National Social Insurance Program says he's not optimistic about a big fix. The retirement fund is in trouble. I've come around to a different opinion than what I've expressed in the past, that we need to do incremental change. Also, coming up in about 10 minutes, we'll preview the World Cup, which kicks off Thursday. But first, inflation has hit its highest point in over three years.

1:19Loretta Mester:A Labor Department report shows consumer prices in May were up 4.2 % from a year ago, and much higher than before the U.S. and Israel went to war with Iran. You don't need me to tell you that prices are up. Gas prices in particular are up 40 % since May 2025. But it's not just the gas tank. Tomatoes are up almost as much, 32%, to give you just one example. Loretta Mester was head of the Federal Reserve Bank of Cleveland from 2014 to 2024. She told Scott Tong, inflation is hurting consumers, and not just at the gas pump.

1:59Michael Astrue:Well, I think it's a broader inflation story. It certainly is true that the surge in energy prices that we've seen since the Iran war started certainly is adding to total inflation. But if you look at the other components, you also see that services prices, and when you take out food and energy prices, those measures, those so-called core measures are also running pretty high. So I think it's a broader story than just tariffs and just the energy price surge. And it's been running high above the Fed's target, which is 2%, for five years and counting now.

2:38Loretta Mester:So for the American consumer, the American family, I mean, does it hit our list of must-buy things? Our utilities are up, gasoline, our food. In other words, is it hard to escape this inflation?

2:53Michael Astrue:I think it's very hard to escape it. And what's particularly really hard about it is if you look at lower income households and even median income households, if you look at what they spend their money on, of course, they don't have as much discretionary income. So they're really buying the essentials, food, energy, shelter. And those prices have been moving up, especially food and energy, at much higher rates than perhaps other things in the basket. So it's hitting particularly hard those households who have the least wherewithal to handle it, which is why inflation is such a hard – it's a really painful, bad problem to have.

3:36Michael Astrue:And that's why the Fed needs to really be concerned about the continually running hot inflation numbers. Now, it is down from where it was post-pandemic. You know, we got it by Fed action, but we're at a point now where it's continuing to be high and it's continuing to impact households. And yes, you know, you look at, well, it's relative to their wages, right? Our wages going up. And it's only been very, very recently that you could say that wages have finally caught up to prices. But now, right, we have inflation rising again more than wages are rising. And so that's going to open up that gap again, where people are going to find and really feel the burden of inflation.

4:23Right.

4:23Loretta Mester:Hard for our paychecks or they're not keeping up, as you say, with prices. Meantime, the job market seems somewhat solid, 170 ,000 new jobs in May. So does this increase the odds, do you think, that the Federal Reserve will raise interest rates this year to cool down prices because some market measures suggest the chances going up?

4:46Michael Astrue:Well, they certainly have to change the conversation. Of course, before the war and we were getting some of the inflation numbers, the conversation was really about taking actions to sort of make sure that the labor market would stay stable and not deteriorate. And they did take some action. now the conversation has to be we've got a hold for a while because inflation is our main problem and then really talking about okay what do we need to see that will actually decide for us that it's time now to raise rates again so the conversation isn't going to be around cutting i don't think it's got to move towards what do we need to see to raise rates i don't think they're going to do anything about raising rates at the meeting coming up, but they have to have that conversation and start that conversation.

5:38Loretta Mester:Yeah, and that meeting is next week. We know the president has been pushing for a rate cut, I mean, rate hikes. We know they hurt. What position does this put his chosen new head of the Federal Reserve, Kevin Warsh?

5:50Michael Astrue:Well, you know, any new Fed chair coming in has got to really prove his credibility. And what I mean by that is they have to show that they're basing their policy decisions on economic analysis and leaving politics at the door. Politics should never enter that FOMC room. So Kevin's going to have to do that at the meeting coming up. And it would be hard, I think, at this meeting to make any kind of case that it's time to cut rates again. I think he's going to have to say, you know, we're going to be on hold later on. Maybe the discussion can change again. But right now, the outlook can't really, they can't be talking about cutting rates.

6:31Loretta Mester:Loretta Mester is former president and CEO of the Federal Reserve Bank of Cleveland. Loretta, thanks very much.

6:37Michael Astrue:Thanks for having me.

6:42Loretta Mester:Coming up next, the Social Security Trustees just released their annual report, and their findings have people worried. The report moves up the date at which, in its current form, Social Security will start to run out of money. That means people who paid into the system for decades could see their benefits cut. Or Congress could raise taxes on the wealthy. After the break, a former Social Security administrator weighs in.

7:21Loretta Mester:The Social Security Trust Fund pays retiree and survivor benefits to tens of millions of Americans at any given time. The deal is, you pay taxes now, so the fund will be there when you retire. But that social contract is threatened, because Congress has failed to update Social Security, despite decades of warnings about its solvency. A new government report just out provides a snapshot of how bad things are. The Social Security Trustees report says in 2032, seniors could see their benefits cut by 22%. So what's the fix? That's what Indira Lakshmanan asked Michael Astrew, who led the Social Security Administration from 2007 through 2013.

8:08Michael Astrue:So the Pew Research Center estimates that for 27 % of Social Security recipients, it is their sole source of income. So it's concerning for folks who have contributed faithfully to the system all their lives to hear that they can't count on their estimated payouts come 2032 in just six years. Yes.

8:28Loretta Mester:So a couple of things. First of all, it's important to just take a moment and celebrate what a success this program has been for almost 100 years now. And we've only had one previous serious financing crisis. And so there have been a lot of good things that have happened and it has lifted an enormous number of Americans out of poverty. It's also important to remember that even though it would be devastatingly dumb for Congress to do nothing, if they do, there still will be benefits and they still will be substantial for a lot of people. But they will be at about 80 percent. The retirement fund is in trouble.

9:05Loretta Mester:Well, I've been saying this for 20 years that we look at the rescue of Social Security in 1983 and say that's the model. We do one big 75-year fix. And I look at it now and I think Congress is incapable of doing that. So I've come around to a different opinion than what I've expressed in the past that we need to do incremental change. And we need to move the 2032 date maybe to 2050 and set up a mechanism so that Congress is forced to deal with this on a regular basis every four or five years.

9:39Michael Astrue:Interesting. OK. Well, let's give listeners who may not be following this as closely as you have, of course, a little bit of context, which is that the last time that Congress made significant changes to Social Security was back in 1983, as you mentioned. At the time, the fund was months away from not being able to pay out full benefits. So lawmakers increased payroll taxes and raised the retirement age for full benefits. It sounds like you don't think there's political will in Washington today to make major changes that would be needed to rescue the fund. And you believe there's a different approach that could work better?

10:15Loretta Mester:Yes, I think so. We need to lower our sights a little bit. And I think by shooting for more realistic targets in the very near future, then we might have a chance of getting some breathing room and then having regular discussions about doing better over the longer run.

10:31Michael Astrue:Well, I want to step back and sort of ask how we got here in the first place. I mean, this year's report says the fund is going to reach the depletion point three months earlier than was expected last year. But in a way, this isn't news. We've known for years or even for decades that Social Security was suffering and maybe a little bit insolvent. So explain to us, you know, is it tax cuts? Is it drops in birth rates? Is it the baby boomers' retirement boom? What are the reasons that we're suddenly running out of money in 2032?

11:06Loretta Mester:We've known for a long time that there was a demographic bulge going through the system with the baby boomers. I think that the biggest threat to the system now that we should be having a discussion about is the drop in the birth rates. And allied with that is also a drop in immigration.

11:25Michael Astrue:You know, many immigrants do pay Social Security tax. So isn't that also, you know, not just birth rates but also immigration would be a positive thing of getting younger people and immigrants to contribute more to the Social Security Trust Fund?

11:40Loretta Mester:For where we are right now, it's not big enough and long enough to really affect the trust fund. But we ought to be debating that. The Congress ought to be debating that. And they're generally not. So if I have a message this year, it's not just the same old, this is bad. Congress ought to do something and then nothing happens. I'm tired of that. So what I think needs to happen now is that we need to start pressing Congress to at least make some incremental changes.

12:10Michael Astrue:All right. So whether they do it incrementally or whether they do one big fix, what do you think Congress should be doing to fix the problem we have in Social Security solvency?

12:22Loretta Mester:So I think we need a small increase in the minimum retirement age, probably from 62 to 63. I think we do need to lift the tax cap a bit. I don't have a figure in my— From the current tax cap of$184 ,000. That's right. There are some other things that are smaller, don't generate a lot of money, but I think part of what we need to be aware of is confidence in the system. You shouldn't be able to apply for unemployment, comp, and disability at the same time. Congress needs to clean that up. And there's also the problem of what I call the trophy wife benefit, which goes exclusively to men on benefits who have a child under the age of 18.

13:04Michael Astrue:And how much money is that costing the system a year?

13:07Loretta Mester:Last time I checked, which was a few years ago, it was about$2 billion a year. But I think if people feel that the system is trying to be fair, is trying to be frugal, they're going to be more willing to accept some of the other harder news that goes along.

13:21Michael Astrue:Michael Astrew was Social Security Commissioner under President George W. Bush and Barack Obama. Thank you so much for joining us.

13:27Loretta Mester:Thank you for inviting me. The world's biggest sporting event starts tomorrow. The World Cup final isn't until July 19th, but the tournament's first official match is Thursday. If you haven't yet poured over the brackets, don't worry. Indira has your World Cup preview in just a minute.

13:54Michael Astrue:The 2026 FIFA World Cup is about to begin, so you can blow your horns and speed your clackers. All eyes are tomorrow on Mexico City, where Mexico is hosting South Africa in the opening match that kicks off the 104-game tournament, the largest in World Cup history. NPR sports correspondent Becky Sullivan joins us from Los Angeles, where Team USA will play their first match Friday night against Paraguay. Welcome, Becky. Hey there. So first, big picture, why is this World Cup so special? Well, yeah, I mean, you said it's the largest in history. So, you know, for the past couple, three decades, it had been 32 teams in the World Cup.

14:34Michael Astrue:Now, for the first time, there are 48 teams participating. So more teams, more games. And the other thing is that, of course, it's taking place across North America. So there's three host countries, not just the U.S., but also Canada and Mexico co-hosting. Games are going to take place in 16 cities over the next month across all three countries. And so, yeah, the scale here is just huge. Right. Well, with the field expanded to 48 teams, tell us which nations are making their World Cup debut this time. Yeah, there's four national teams that are appearing in the World Cup for the first time. So that's the African island nation of Cape Verde or Cabo Verde.

15:13Michael Astrue:And then you have Curacao in the Caribbean and you have Jordan and Uzbekistan. And then, yeah, there's also some teams that just haven't competed in the World Cup in a long time. So they're not making their first appearance, but they are making their first appearance in, you know, like 30, 40 years. So there's a lot of excitement, say, about the Scotland team. And Iraq is another one. This is just their second appearance in the tournament and it has been 40 years since their first. Yeah, we're going to be seeing a lot of flags flying from all of those nations near their World Cup matches. All right, let's talk Team USA.

15:44Michael Astrue:Who are the biggest stars and what does a successful World Cup look like for the U.S. men's national team? Yeah, this date has sort of been circled on the calendar for a very long time for the U.S. men's national team, not just because the tournament is hosted here in the U.S., but because there is this sort of generation of players who are now in their prime. And so the sort of stars, the focal points of the team, I would say, are this core group of, you know, you have forward Christian Pulisic, who's probably the biggest star on the team. He's a forward. He plays in the front left. He's the active leading scorer for the U.S.

16:19Michael Astrue:men's national team. Plus, you have these midfielders, Tyler Adams and Weston McKinney. All three of these guys are 27 years old. They're the faces of the team. They've been playing for the U.S. together since they were teenagers. Now all three of them play for these top-level European clubs in Italy and in England. And they are surrounded by a strong supporting cast, arguably the strongest of any U.S. national team in history or World Cup team in history. So there's a lot of confidence. There's a lot of optimism surrounding them, even as the pressure is really high with the World Cup, of course, here in the U.S.

16:49Michael Astrue:And so they I think, you know, you asked about what what a goal is or what a what a successful tournament run would look like for them. I think that would, of course, include emerging from the group stage, whether that's winning or coming in second place. I think that would be a good start. And then they want to make a run in the knockout portion of the tournament. And so I think for them, a round of 16 is realistic. A quarterfinal appearance or beyond would really, I think, prove to the world that the American men's soccer has arrived in a way that maybe it hadn't before, even though the U.S.

17:18Michael Astrue:has reached the quarterfinal before as recently as 2002. But they've had some more points since then. I remember that game. I was watching it in South Korea on assignment, and American fans were going nuts in 2002. I remember it well. All right. Well, so making it to quarterfinals again this time would be a huge achievement for Team USA. Let's talk winners. Who are the powerhouses favored to win? Everyone loves a winner. Yeah. I think, you know, you've got your usual suspects, of course, from Europe and South America. So like Spain and France have both been very good these last few years. They've been the sort of real heavyweights in Europe.

17:55Michael Astrue:Plus, I think England has a good team. Portugal with Cristiano Ronaldo and the Netherlands. And then from South America, you've got Brazil. And of course, you have the defending World Cup champs in Argentina with Lionel Messi back again at 38 years old. They're set to make a strong run. And I think I think nobody would be surprised if any of those teams won it. They should all be strong contenders and are set up for exciting runs through this tournament. All right. Briefly, there have been some visa issues, some tensions for certain teams and fans. Yeah. I mean, the visa issues have been a story for, I would say, more than a year now, obviously, because of the Trump administration's sort of tightening of immigration policies here in the U.S.