CHICAGO FED AUSTIN GOOLSBEE INTERVIEW ! inflation

Transcript

SPEAKER_02 0:00

It's been a weird couple weeks because the price of oil was over 100. Now it's at 70 bucks. It goes into so many things that go into the inflation that you and your team watch so closely. How hard is it for you and your team to get a read on inflation right now?

SPEAKER_01 0:17

It's hard to get the through line for sure. And then not just at the Chicago Fed. Everybody sees that. You talk the people trading the futures. They're trying to figure out what's the through line on inflation, how persistent, how temporary are these hikes that we've seen. The Fed, as you know, has an inflation target of 2%. We've been above that number for five straight years.

SPEAKER_02 0:43

I know you went to MIT, but four is not two. I don't know. Four is not two.

SPEAKER_01 0:46

Do I need to tell you that? Four is not two. And so the question we've had periods where we were making progress, then we kind of stalled out on the progress. Lately, it's been going the wrong way. But some of the going the wrong way is driven by what we hope to be temporary events, wars, tariffs. These are things that are supposed to be won and done, and then you would see the inflation going away. It's been a little more disturbing on the services side because that's not real, that elevated inflation is not coming from tariffs, it's not coming from oil prices. So I think we gotta keep watching these numbers. There were it wasn't all negative in this in this inflation report. You have seen now a little bit of improvement on the services inflation, and I've been identifying that as some something that we that we would want to see. But the right now, as between the two sides of the Fed's mandate, the inflation side and the job market side, clearly the problems on the inflation.

SPEAKER_03 1:59

How different was last week's week's Fed meeting from what you were accustomed to?

SPEAKER_01 2:03

And to have the former chair at the table. And the the former chairs at the table. Now, as you know, it's a very secretive hush-hush. So I'm not saying what anything was said. I worked pretty closely with now Chairman Walsh back in the financial crisis, 09, 010, 011. I thought he was, he's a comes in with new ideas. He's a serious guy. You saw in the press conference that that he comes with a different style.

SPEAKER_03 2:34

Well, that statement, I mean that that statement was what like one paragraph long.

SPEAKER_01 2:38

The statement was was succinct and to the point. Do you like do you like that? Uh look, as as I as I've said, I before I was ever at the Fed, and since I've been at the Fed, I've been uneasy with the use of forward guidance and speculating about the future of rates on a routine basis. I understand. I don't know that I hate the dot plots. I definitely don't like us committing three years ahead forecast of what we think it's gonna do.

SPEAKER_02 3:09

Now, but you didn't abstain. We kevin Walsh was the abstainer. He said that in the press conference. He said they were 18 and 19, I was the guy that didn't do it. So you obviously submitted your forward guidance. But you would be in favor of the system we have. But you'd be in favor of that going away.

SPEAKER_01 3:24

I don't I don't want to get with the the chairman has organized a communications task force that's gonna think through what all the options are. I I welcome that thinking. We should constantly, I described it a little bit as a caffeine cleanse that even if you think that there are uses for forward guidance, it behooves you to every once in a while not drink three cups of coffee every day so that when you really need it, it's more effective.

SPEAKER_03 3:56

I I think about three kind of tools of Fed policy right now, in a way. There's obviously what you do on rates, there's the balance sheet, and in some ways there's this financial deregulation piece. Can you talk about how important each of those are right now, or do you think the Fed funds rate remains the focus?

SPEAKER_01 4:13

I think in my mind, I'm not allowed to speak for the committee or for anybody else, but in in my mind, the rate decision is the fundamentally the monetary policy decision, and the law tells us that we're supposed to be trying to maximize employment and stabilize prices when we're setting the rates. The balance sheet in emergencies, like the origins of QE, was used as monetary policy, but I tend to think of the balance sheet not as a monetary policy decision. And financial regulation, we out in the heartland at the reserve banks, we don't we don't set the financial regulation policy. Right. We just do the supervision.

SPEAKER_03 5:02

Is that a consideration?

SPEAKER_01 5:04

As I say, I we want well-functioning markets, especially treasury markets. I don't think of the balance sheet decisions as a predominantly monetary policy decision.

SPEAKER_02 5:15

I think the rates are do you think the stock market at record highs is inflationary?

SPEAKER_00 5:21

I thought you were gonna say, do you think the stock market is overvalued? I was gonna be like, I think.

SPEAKER_02 5:25

Hey, by the way, do you think the stock market is overvalued? Because I'm gonna tell you something hold on. If you answer that question, yeah, the people right behind us would go crazy and the phones would start ringing, and we'd be people be screwed.

SPEAKER_00 5:38

Maybe we should ask the stock market overvalued.

SPEAKER_01 5:40

And they would ask Alan Greenspan, what you know, what's gonna happen with rates? And say, can I tell you something off the record? Yes, no comment. So is the stock market being what it is inflationary? You you want to get the the what's cause and what's effect right, but I've highlighted in a world where there are potentially big productivity gains to come in the future from AI, from technology. If that gets factored into valuations today, and if people start spending out of these future bounties today, they see, oh, I was in on the on the latest IPO, and now I'm really rich and I'm gonna buy a bigger house, and that drives up house prices. That's happening. That's actually a good thing. It wasn't a that wasn't a BS question, I think. I wasn't, I didn't say it was. I just use boundary. That's a BS. But if the more we see pulling forward activity into the present that's counting on future gains, that makes me a little nervous that you could see inflationary overheating in the here and now because it hasn't though those bounties of productivity growth hasn't been.

SPEAKER_02 7:01

There's nothing you can do about that unless you guys decided to bring the stock market down.

SPEAKER_01 7:05

Yeah. Our motto here you're in Chi Town. There's no bad weather, there's only bad clothing, okay? At the Chicago Fed. You tell us the conditions, and we'll pick the right jacket. And there are a lot of things in the market that we just we have to deal with. We can't, we we don't control it. We can't pump oil at the Fed, we can't address the some of these factors, but we do have to adjust the best.

SPEAKER_03 7:32

So going to back to the heart of the matter, which is the Fed funds rate, and you mentioned the inflation report, you're looking at services and maybe seeing some signs of better news there, if if we can put it that way. How much more do you need to see? And we talked we talked to Rick Santelli, and he said we're probably two CPI reports from being able to see the effects of what's going on with oil now, really more to flow through. Talk more about that.

SPEAKER_01 7:56

You never want to count on one report, as I always say, one month is no months. So we're seeing some glimmers of hope on the services side, but I don't want to make too much out of it. It's still well higher than where it needs to be, even on services. Even if they waved a magic wand, the war ended today, everything went back to geopolitically what it was before. My understanding is that it will still be a fair bit of time before they can get everything stood back up. Some things have blown up and they they got it rebuilt. So realistically, there it feels like will be some lag. We're used to thinking about core inflation excluding energy, excluding food prices, which, as I say, my mom goes crazy. What do you mean you're ignoring food and energy prices?

SPEAKER_02 8:58

Oh well, your mom is a genius.

SPEAKER_01 9:00

The reason we're genius. My mom is a genius, but for for a for a different reason just than that. The reason we do that is because they're extremely volatile. So there is a component that oil prices have been way up, they may go down rapidly, hopefully. If we look at core inflation, it's still what well too high and it's trending the wrong way, and we've got to see improvement on that.

SPEAKER_02 9:27

Well, I guess to follow up on Kelly's question, how long does Austin Goolsby? I know you can't speak to the rest of the Fed, have to wait to see the data. How long would it be before you say, okay, this is the new normal, or it's going to go back to the previous normal?

SPEAKER_01 9:42

It depends what it's what the data say. But the data's lagging, it's backdated. We just had this, we just had this description that Chairman Warsh has come in, and I told you I'm sympathetic to the argument that he has made publicly. Let's stop speculating so much about the future of Rate Path. But now you're basically saying, let's speculate about what it means for the rate path. The stuff you do matters for the half-get the data.

SPEAKER_02 10:12

The stuff we have to do is fair. But the stuff you guys do affects what happens in the future. I don't display the rates you set matter to financial conditions months, quarters, years out.

SPEAKER_01 10:23

They do. That's definitely true.

SPEAKER_02 10:25

So you're de facto thinking about the future.

SPEAKER_01 10:28

We have to think about the path and get the through line right. I I totally agree. And that's not a one-month, it's not a through line if you just get one month. But even just the core CPI inflation, if you just looked at that, just that top line number itself is not enough. If you had a top line number of 3.5 and where it was coming was heavily from an acceleration of inflation in services, that would make me much more nervous that it was going to be persistent than if what you were seeing was a spike in goods that are associated with oil markets. Because then you would say, hey, I got a I got a sense that if they can resolve the geopolitical tension, then that that inflation could come down in it in the near term.

SPEAKER_03 11:21

Does that mean the labor market is a tell? Services inflation usually comes from the labor market a little bit more.

SPEAKER_01 11:28

The labor market is even more than a tell in that it's in our mandate. We have to, by law, pay attention to the labor market and maximize employment. The way it's not a tell, and that I often caution people, is wages are stickier than prices in the economist language. They move slower than prices. So when things happen, prices go up, then wages go up, then inflation comes down, then wages come down. Wages are not a great leading indicator for inflation. And just be a little careful for the people saying wage growth is moderated, so therefore there can't be a rise in inflation. That's not true at all. Inflation could go up before the tailwagging the dog and by space.

SPEAKER_03 12:16

Was it more of a family fight? When in the meeting, was it more animated and was there more back and forth than usual? Was there more challenging?

SPEAKER_01 12:25

How am I gonna characterize a secret meeting? You do you it's like the situation room, you gotta leave your phones out of there, the shades come down, nobody can see in the room. Uh I I enjoyed very much my time, and I felt a bit like Foxhole Buddy with the chairman through the financial crisis in 2009, 10, 11. I saw him in a moment of very high stress for everybody, for here and the world and economists, and he was very level-headed at that time.

SPEAKER_03 12:54

Is there going to are we gonna hear less from you?

SPEAKER_01 12:56

That's not a fight. That's not a family fight.

SPEAKER_03 13:02

Was there is there any kind of implicit understanding about that, or is it still status quo?

SPEAKER_01 13:06

I I told you, and we're whenever we're on, I don't like speculating about the future of rate paths. And to the extent that we're trying the the that the chairman is trying to tone down speculation about rates in public, I I totally how about the future of mandates?

SPEAKER_02 13:25

I don't you referenced labor mandates mandates bear with me on this. I'm a little, you know, it takes some times. I gotta I'm slow, Austin. I move slowly. I thought you were Mr. Only. You and I hang out at the Brahe Mall. No, no. You're the only central bank in the world, major central bank, that still has the dual mandate with jobs. Almost everybody is inflation only based, right?

SPEAKER_01 13:46

No, I don't know. Bank of Japan, Bank of England, some are, ECB, the big ones.

SPEAKER_02 13:51

Should we kill the labor mandate out of your the Federal Reserve's edict?

SPEAKER_01 13:57

I don't think A, I mostly am let's follow the law. Now, this is a question: should we change the law? Yes. But right now, if you can vote, would you change it? I personally think that the central bank must respect the how the economy's doing as well as maintaining price stability. Even in cases like the ECB, where it's an inflation mandate, there is language that ties their commitment to the price stability as well to how the economy's doing. And they certainly, when they're making the decision, is half incorrect.

SPEAKER_02 14:38

No, I think your point is in Warsh is pushing.

SPEAKER_03 14:40

You were half correct. Hey, I got a B minus or a which So if we could we see less, would we ever get to a point, and especially in memory of Greenspan's passing, where we remember that he was the one who began making the Fed in his own way more of an event for markets? Do you think that Warsh is going to try to pull back even more on what's in the statement, how much information is passed along? And if if markets become more volatile as a result, would that be perceived as a net benefit? In other words, is that what we need at a time like this when there's frothy markets and everyone thinks like a certain Fed and we kind of want the opposite?

SPEAKER_01 15:17

I'm not gonna speak for for the chairman. I I told you, I'm an admirer of his and the last statement we put out, I applauded. Let's streamline, let's take some forward guidance out of there. Let's not speculate about the rate path. I think it's healthy that we have those resets. What's to come in the future? We will all we we will all see.

SPEAKER_03 15:38

Can I ask you one more quick? I know, I know we have to go, but this is so important now. We all say, well, we've got to look to the data and to the market. But what does that mean? When we ask, people say, well, the data's backwards looking, so you look to the markets. But what in the markets do you look at for signals about monetary? I was getting nervous there.

SPEAKER_01 15:54

I was like, you're a CNBC anchor. You're asking me what does it mean to look at the data? What? Yeah, what what's on your dashboard? I I never aspired to be a hawk or a dove or a bird of any kind. I only ever wanted to be one of the data dogs. And one of the key rules of the data dogs is sniff every datum that hits the floor because it might be food. So I try to get a full portfolio, especially in moments when take the labor market. Historically, the headline jobs created for the month was the best number. But when you have question marks around any one number from population growth, immigration, et cetera, you're best off. Go get four or five different numbers the hiring rate, the unemployment rate, the vacancy rate, the layoff rate, and make a dash.

SPEAKER_03 16:45

But you're still you're looking more at the data than you are looking at financial markets.

SPEAKER_01 16:49

In other words, you could be looking at both forwards and inflation expectations, for example. We have various market measures that supplement survey measures. To me, those are important. Those are important.

SPEAKER_02 17:02

I think we got the gools be pop, the market, you know, this is it weird. These people behind us, everything you say, they're gonna listen to every single word that you utter. To use the wrong word. What do you think of this guy? What do we think of me? What do we think of him?

SPEAKER_03 17:16

What do we think of him? What do we think of it?

SPEAKER_02 17:19

We like this guy. What do you want to Fed raise rates or lower rates? They don't care. They're like, we don't care, they'll make money both ways.

SPEAKER_03 17:26

Both, they want, they want both, they want both, they want both volatility. Both volatility.

SPEAKER_02 17:31

They want both for the same reason. Yeah. They want to make they're gonna make money both ways.

SPEAKER_03 17:35

Volatility is better for this business. Austin, thank you so much for making the time.

SPEAKER_01 17:40

It's good that you came out here.