Transcript of Fed Raises Interest Rates, Iran War and Oil Prices, EU-Canada Alliance

President Trump's handpicked Fed chair, Kevin Warsh, did the opposite of what Trump wanted him to do. He raised interest rates.

The president is not happy and pressed the Fed to reverse course and lower rates. How is the new chair reacting to the pressure?

I'm Amy Martinez. That is Michelle Martin. And this is Up First from NPR News. From Syria to Portugal, people are protesting higher fuel prices. With the war in Iran showing no sign of ending, countries are drawing from their oil reserves and Saudi pipelines are under attack.

Mexico's prime minister will address the European Parliament today after an invitation to become the EU's first associate member. Trump threatened more tariffs if he decides it's a hostile act. Stay with us. We'll give you news you need to start your day.

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Interest rates are higher this morning after the Federal Reserve raised them for the first time in 3 years.

The vote on Wednesday was unanimous, and now the Fed's benchmark short-term interest rate is a quarter of a percentage point higher, which is exactly the opposite of what President Trump wanted when he chose a new Fed chair.

NPR's Alina Selyuk is here to walk us through the latest. Good morning.

Hello.

Hello.

Okay, so we know what happened. Let's talk about why and what it means that the Fed has raised the interest rate.

Well, it means the Federal Reserve is making the move to cool down inflation. I'll tell you my corny metaphor for this. You know how in a fire there's like a red box that says, in case of emergency, break glass?

Yeah.

Well, if you think of inflation as a fire, the rate hike is like the Fed saying emergency and breaking that glass to grab the extinguisher. But the Fed is also hoping they don't have to, like, Blast away for a long time, which is to say the Fed's rate-setting committee signaled one more rate hike this year and that's it.

Not quite a dad joke, but we'll take it. So let's get to the political drama here. Trump pressured the previous Fed chair, Jerome Powell, to lower interest rates. He even threatened to fire Powell over this. Not clear that he could, but he threatened it. So Powell's term as chair ended. Trump picked a replacement, Kevin Warsh. And now, pretty soon after Warsh took over, the Fed raised rates. So where does this leave the Fed chair now?

Yeah, last night, Trump again on social media pressed the Fed for lower rates. This dynamic came up a lot in Warsh's press conference yesterday. Like Powell, Warsh refused to engage. He kept saying the Fed is independent, the Fed should stay in its lane, and he has nothing to say about the president.

Say more about the argument for raising rates.

So fundamentally, the Fed has a certain credibility to maintain, and the data is the data, which is what Warsh essentially said. The inflation trends are simply not improving.

The plain fact is that inflation is too high. And has been for too long.

Inflation has been above the Fed's goal for 5 years. And Warsh made the case that this is a strong economy to absorb this rate hike. People are employed. They're still shopping. Actually, just yesterday we got the latest data on retail sales that showed people spending more across the board, including on fun things like hobby supplies and sporting goods. The Fed has to walk a narrow line, putting the brakes on the economy without tipping it into a recession. And that's part of why this rate hike is not huge, only a quarter of a percent.

And also, you were reminding us that actually it wasn't just Warsh, it was all 12 members. 17 members of the Fed Rate Setting Committee voting unanimously. OK, so for people who aren't economists, how does a rate hike by the Fed work to fix inflation?

Raising interest rates makes it more expensive to borrow money, which theoretically means people and businesses will think long and hard before getting a mortgage or a business loan, buying a car, shopping on credit. And that kind of cooldown forces prices to stay in check.

But only theoretically, though.

Well, one big factor right now is the fact that the big driver of current inflation is the war in Iran. It has pushed up the cost of gasoline and the price of diesels at historic highs. And that's definitely not something an interest rate hike can fix. The Fed also has no say on tariff policy, which is another driver. And we have the fact that wages have not been keeping pace with inflation for 5 months now. People's paychecks have been losing their buying power. Warsh hopes the stable prices will help families keep their heads above water. Either way, any positive effects of this are unlikely to be Very quick.

That is NPR's Alina Selyuk. Alina, thank you.

Thank you.

People around the world have been protesting over rising gas prices.

And it comes as Saudi Arabia, the world's biggest oil exporter, faces a renewed war in Yemen against the Houthis with attacks on its energy infrastructure.

NPR International correspondent Aya Batrawy is covering this from Dubai. Good morning, Aya.

Good morning, Michelle.

So let's start with the fallout from higher energy prices.

Yeah, so this spike in prices is leading to protests in Syria, the Philippines, Indonesia, and other countries. You also have Bangladesh rationing electricity with frequent power cuts there. And this latest war in Yemen and the attacks on Saudi energy from that just adds to the existing pressure on oil markets where prices are way up. Diesel has already hit a record high in the US, and that means higher costs for trucking and farming. Brent crude has been trading about $105 a barrel. That's up some 50% from before the war with Iran. So you have all these various pressures now on refineries across the Gulf from attacks on their infrastructure from the US war in Iran to continued attacks on shipping through the Strait of Hormuz. And we know that countries are drawing from their strategic oil reserves to try to plug the gap.

So tell us how this escalation between the Saudis and the Houthis is challenging energy supplies.

Yeah, Michelle, I mean, let's just look at the numbers, right? Data from OPEC shows Saudi Arabia's oil output fell to around 6.2 million barrels a day last month. Now compare that to nearly 11 million barrels a day before the US war with Iran. And the Saudis are now facing these 2 chokeholds. One in the Strait of Hormuz, and since July, a blockade on their ships by the Houthis through Bab al-Mandeb. That is the other key shipping strait through the Red Sea. Now, the Saudis were using the Red Sea for months now to bypass the Strait of Hormuz, but because of those Houthi attacks on Saudi ships, the kingdom is now taking a much longer and more expensive route that goes up north through the Suez Canal and then through the Mediterranean Sea and around Africa to reach buyers in Asia. But also, Saudi Arabia's energy ministry confirmed that a 750-mile-long pipeline that was carrying crude oil from the east to Saudi Arabia's western coast in the Red Sea was hit by drones, this time from Iraq, and it forced that pipeline to shut down last week. Now, the Saudis have not disclosed how long repairs could take or the extent of damage there or to other Aramco sites that have been also hit by the Houthis.

But NPR has seen satellite images of damage to that pipeline's pumping stations.

And let's not forget about the human toll of these these wars in the Gulf. What can you tell us about that?

Yes, Michelle, let's start with Iran. There's a report out today by a UN investigative body that says there are reasonable grounds to believe the US committed war crimes in airstrikes on Iran at the start of that war. They say those airstrikes killed at least 178 civilians, including 120 schoolchildren at a school in Minab in southern Iran. The Pentagon is still investigating that attack. And Yemen, well, it is reeling from 11 years of conflict. But this month, the fighting between the Houthis and Saudi-backed groups for territory along Yemen's western coast has displaced more than 100,000 people, according to the UN. And we have reached out to people in Yemen who say there is simply not enough shelter or aid to assist everyone and that families are just sleeping under trees. And the Houthis say the Saudis have fired hundreds of airstrikes on Yemen in past days. And the Saudis say dozens of people have been wounded in the kingdom.

Are there any talks going on, maybe behind the scenes, to calm things down?

Well, Egypt is getting involved a bit. We know the Saudi crown prince visited Cairo this week. But President Trump, you know, he's still mired in the war in Iran. And so he hasn't shown any willingness so far to strike the Houthis like he did last year. And now Vice President Pence says the U.S. is talking with the Houthis. An official in Saudi Arabia who spoke anonymously in order to discuss security matters confirmed to NPR that there was a meeting over the weekend between the U.S. and the Houthis in Oman. And the official says that CENTCOM Chief Brad Cooper briefed Saudi crown prince on Monday about that meeting and said that the Houthis said they would not attack US or Israeli vessels in the Red Sea, that those attacks are focused only on Saudi oil tankers and carriers. And that official told NPR that even after that meeting with the Houthis, Michelle, the US is helping the Saudis with planning and sharing intel on Houthi forces and weapons depots.

That is NPR correspondent in Dubai, Aya Batraoui. Aya, thank you.

Thank you.

Canada has made it clear it does not want to become the 51st state. But will it become a 28th member of the European Union or something like it? That was the proposal on Wednesday from the European Commission head in a speech to the EU Parliament in Strasbourg, France. This morning, Canadian Prime Minister Mark Carney took his turn.

Canada and Europe are each strong. Europe and Canada are stronger together.

We go now to NPR's Eleanor Beardsley, who's following this from Paris. Good morning, Eleanor.

Hello, Michelle.

So what did Carney say?

Well, he did not get into the nuts and bolts of an agreement, but he emphasized how much the EU and Canada have in common and their long history together. He spoke in English and French, Canada's other official language, And he even wove in a little German when quoting philosopher Goethe. Let's listen to a little more.

We do not pursue zero-sum deals. Our commitment to the rule of law and our unyielding defense of human dignity, individual freedom, and democracy share the same deep roots, the same unwavering dedication.

So he is clearly contrasting what he considers the values that Europe and Canada share with the actions of another nation recently. He doesn't name the US or the Trump administration, but it's clear. You know, Europe and Canada have felt threatened by the US under the second Trump administration, from the tariffs to the threats of leaving NATO and taking Greenland. Both the EU and Canada are feeling bullied by their long-term ally.

So what exactly has the EU proposed?

Well, yesterday, the head of the European Commission, Ursula von der Leyen, addressed the European Parliament in her annual speech, often referred to as The State of the Union of the EU, and she proposed making Canada the first associate member of this economic and political union. It's not clear what this means technically, the nuts and bolts of it. It seems largely symbolic for now. Canada and the EU already have a deep trade relationship, but analysts are saying it could broaden and deepen the alliance to include things like security. Here is European Commission head Ursula von der Leyen speaking and making it clear Canada and Europe have much to accomplish together.

We see the world with the same eyes. From AI to climate change, from the Arctic to geopolitics. And we have stood together on Ukraine, on defense, on raw materials and supply chains. But above all, dear Mark, Europe and Canada believe in democracy.

And why do we think this happened now?

Well, it's happening now because, you know, both these blocs are feeling under threat. But I spoke with European Parliament member Nathalie Loiseau, who's in Strasbourg in the European Parliament. She says everyone's been waiting for Carney's response this morning. There's a huge appreciation of his leadership, she says. Loiseau said what really struck in von der Leyen's speech yesterday is that here's a German politician from the center-right, a former defense minister, very pro-American. She spoke for an hour and never even mentioned the US or President Trump, preferring to talk about Canada. This is what Loiseau told me.

Saying, well, guys, democracies are under attack. The geopolitical order is in ruins. So we have to team up, the ones who consider that we have a message, we have common interests, we have common values, and we have to work closer.

Has President Trump responded?

Yes, he said it was laughable Canada joining the EU, but also said it could be interpreted as a hostile act, and if so, he was going to put more heavy tariffs on Europe.

That is NPR's Eleanor Beardsley. Eleanor, thank you.

You're welcome, Michelle.

And that's Up First for Thursday, September 17th. I'm Michelle Martin.

And I'm Amy Martinez. Today's episode of Up First was edited by Rebecca Rossman, Miguel Macias, Tina Kraia, Mohamed El Bardisi, Alice Wolfley, and Lindsay Toddy. It was produced by Ziad Butch and Nia Damas. Our director is Christopher Thomas. We get engineering support from Zach Coleman. Our technical director is Carly Strange. Our Deputy Executive Producer is Kelly Dickens. Join us again tomorrow.