WEBVTT - Chicago Fed President Austan Goolsbee Talks Jobs Report & Fed Decision

0:00:00.080 --> 0:00:03.160
<v Speaker 1>On Bloomberg Television and Radio. I am Shanallie Bassik. Joining

0:00:03.240 --> 0:00:07.200
<v Speaker 1>us now is Bloomberg's Michael McKee and Chicago Fed President

0:00:07.280 --> 0:00:09.800
<v Speaker 1>Austin Goolesby. Mike Geta started.

0:00:10.240 --> 0:00:12.960
<v Speaker 2>Thank you chanelling, and thank you to everybody who is

0:00:12.960 --> 0:00:17.040
<v Speaker 2>watching us around the world, including Austin Goolsby joining us

0:00:17.040 --> 0:00:22.600
<v Speaker 2>from Chicago. Thank you very much, mister President. Hiring drop precipitously,

0:00:22.720 --> 0:00:27.639
<v Speaker 2>the unemployment rate shoots up more than anticipated. Everyone wants

0:00:27.640 --> 0:00:30.400
<v Speaker 2>to know, did the Fed make a mistake by not

0:00:30.520 --> 0:00:31.960
<v Speaker 2>cutting rates on Wednesday?

0:00:32.520 --> 0:00:35.479
<v Speaker 3>Well, look, you know, I'm not going to get myself

0:00:35.520 --> 0:00:38.680
<v Speaker 3>in trouble and talk about what people's thinking are from

0:00:38.680 --> 0:00:40.640
<v Speaker 3>the meeting. You're going to have to wait for the

0:00:40.720 --> 0:00:44.600
<v Speaker 3>transcript to come out to see what was on people's mind.

0:00:45.080 --> 0:00:49.599
<v Speaker 3>I've been saying to you for a long time and

0:00:49.680 --> 0:00:53.920
<v Speaker 3>publicly that we'd never want to overreact to any one

0:00:53.960 --> 0:00:57.160
<v Speaker 3>month's numbers. And if you back up to the last

0:00:57.200 --> 0:01:00.800
<v Speaker 3>half of twenty twenty three, you know that the market

0:01:01.160 --> 0:01:04.320
<v Speaker 3>said maybe there will be seven cuts for the year,

0:01:04.760 --> 0:01:08.000
<v Speaker 3>and then when a month would come in, then that

0:01:08.360 --> 0:01:10.840
<v Speaker 3>seven would drop to three. Then there was a group

0:01:10.920 --> 0:01:13.480
<v Speaker 3>saying maybe there will be an increase in rates. The

0:01:13.600 --> 0:01:16.480
<v Speaker 3>job of the central bank is to figure out the

0:01:16.520 --> 0:01:20.640
<v Speaker 3>through line and to move in a steady way. I've

0:01:20.680 --> 0:01:25.880
<v Speaker 3>been warning that we are tight. We are restrictive. The

0:01:25.920 --> 0:01:28.120
<v Speaker 3>real Fed funds rate is as high as it's been

0:01:28.160 --> 0:01:33.240
<v Speaker 3>in decades, and as inflation falls, that gets tighter. If

0:01:33.280 --> 0:01:36.440
<v Speaker 3>we stay restrictive for too long, we're going to have

0:01:36.520 --> 0:01:39.200
<v Speaker 3>to think about the employment side of the mandate. And

0:01:39.240 --> 0:01:41.280
<v Speaker 3>if you look here, if you take this, if you

0:01:41.360 --> 0:01:45.919
<v Speaker 3>take this summary the statement of economic projections in the SAP,

0:01:47.160 --> 0:01:52.240
<v Speaker 3>the neutral rate of inflation, the long term rate of inflation,

0:01:52.400 --> 0:01:56.559
<v Speaker 3>and unemployment. Say that people think full employment is about

0:01:56.600 --> 0:02:00.560
<v Speaker 3>four point one percent. So if unemployment is going to

0:02:00.640 --> 0:02:04.920
<v Speaker 3>go up higher than the neutral rate, that is exactly

0:02:04.960 --> 0:02:07.800
<v Speaker 3>the kind of pinching on the other side of the

0:02:07.840 --> 0:02:11.359
<v Speaker 3>mandate that the law says the Fed has to think

0:02:11.400 --> 0:02:12.320
<v Speaker 3>about and respond to.

0:02:12.600 --> 0:02:15.480
<v Speaker 2>Well, you've been talking about a rate cut, yet you

0:02:15.639 --> 0:02:18.960
<v Speaker 2>voted to keep rates unchanged. Why did you do that?

0:02:19.040 --> 0:02:22.440
<v Speaker 2>And now do you think maybe you are behind the curve?

0:02:23.720 --> 0:02:26.280
<v Speaker 3>Well, look like I say, I'm not going to get

0:02:26.320 --> 0:02:29.359
<v Speaker 3>into talking about the secret discussion. You got to wait

0:02:29.400 --> 0:02:32.560
<v Speaker 3>for the minutes and the transcript to come out. I

0:02:32.760 --> 0:02:38.120
<v Speaker 3>was a seat filler at the OSCARS that that's really

0:02:38.320 --> 0:02:44.000
<v Speaker 3>Cleveland's seat. I was there for one meeting. The committee

0:02:44.360 --> 0:02:47.200
<v Speaker 3>acts on the through line of the data, and the

0:02:47.240 --> 0:02:49.680
<v Speaker 3>through line of the data, you should not change what

0:02:49.760 --> 0:02:52.000
<v Speaker 3>you think. The through line is based on one month's

0:02:52.040 --> 0:02:56.760
<v Speaker 3>number and the overall. You know that I believe that

0:02:56.800 --> 0:03:00.720
<v Speaker 3>we are restrictive. I think that I've been saying for

0:03:00.840 --> 0:03:03.840
<v Speaker 3>months that what we wanted to see was improvement on

0:03:03.880 --> 0:03:08.440
<v Speaker 3>inflation and especially improvement in the components like housing and services.

0:03:08.840 --> 0:03:12.120
<v Speaker 3>And we've been seeing that, and that the longer we

0:03:12.120 --> 0:03:15.520
<v Speaker 3>were restrictive, we're going to have to start thinking about

0:03:15.520 --> 0:03:17.000
<v Speaker 3>the employment side of the MANDID.

0:03:17.240 --> 0:03:21.520
<v Speaker 2>Well, you've heard what the banks, economists and traders are

0:03:21.560 --> 0:03:25.880
<v Speaker 2>saying today. Should the next move in September be a

0:03:26.000 --> 0:03:28.760
<v Speaker 2>fifty basis point cut? And what do you think about

0:03:29.160 --> 0:03:33.560
<v Speaker 2>JP Morgan proposing from a risk management perspective, there's a

0:03:33.600 --> 0:03:37.280
<v Speaker 2>strong case to act before September eighteenth.

0:03:37.840 --> 0:03:41.600
<v Speaker 3>Look, Paul Volger, my old mentor and friend, you saw

0:03:41.760 --> 0:03:44.240
<v Speaker 3>is our job is to act and their job is

0:03:44.280 --> 0:03:47.080
<v Speaker 3>to react. And let's not get the order mixed up

0:03:47.120 --> 0:03:51.520
<v Speaker 3>on that. I fully understand why markets want to jump

0:03:52.640 --> 0:03:55.080
<v Speaker 3>if they get one scrap of information and they see

0:03:55.120 --> 0:03:57.080
<v Speaker 3>one thing, they want to conclude a trend out of

0:03:57.120 --> 0:04:01.280
<v Speaker 3>one data point, and I would just caution us. If

0:04:01.360 --> 0:04:04.800
<v Speaker 3>we had acted at the end of twenty twenty three

0:04:05.440 --> 0:04:09.960
<v Speaker 3>based on a couple of observations, then the same people

0:04:10.000 --> 0:04:13.240
<v Speaker 3>would have said, ah, but look, inflation went back up

0:04:13.440 --> 0:04:16.680
<v Speaker 3>in the first quarter, so that was a mistake. I

0:04:16.720 --> 0:04:19.440
<v Speaker 3>think the most important thing is to look at the

0:04:19.480 --> 0:04:24.200
<v Speaker 3>through line. What will determine the action is if we

0:04:24.279 --> 0:04:26.360
<v Speaker 3>don't want to tie our hands now, we're going to

0:04:26.440 --> 0:04:29.599
<v Speaker 3>get a lot of information between now and the next meeting,

0:04:30.320 --> 0:04:34.120
<v Speaker 3>and what will determine the size or if there is

0:04:34.160 --> 0:04:37.320
<v Speaker 3>action at all, will be the conditions, And that's the

0:04:37.320 --> 0:04:40.240
<v Speaker 3>way it should be. That's as I always say the

0:04:40.400 --> 0:04:43.919
<v Speaker 3>data dogs, there's a time for walking, there's a time

0:04:43.920 --> 0:04:46.640
<v Speaker 3>for sniffing. The sniffing time is when there's a lot

0:04:46.680 --> 0:04:50.760
<v Speaker 3>of uncertainty and you don't know what's what. Once you

0:04:51.000 --> 0:04:53.400
<v Speaker 3>get the through line, that's the time for walking.

0:04:54.240 --> 0:04:57.520
<v Speaker 1>What exactly would it take to see a cut before

0:04:57.600 --> 0:04:58.599
<v Speaker 1>that September meeting.

0:05:00.760 --> 0:05:04.159
<v Speaker 3>I'm not going to get in a speculative bit about that.

0:05:06.320 --> 0:05:13.440
<v Speaker 3>The FMC acts in a consensus manner. We have deliberation

0:05:13.600 --> 0:05:18.200
<v Speaker 3>and debate, and we vote on things, and I hope

0:05:18.279 --> 0:05:22.599
<v Speaker 3>I try to bring the through line mentality of you

0:05:22.600 --> 0:05:25.880
<v Speaker 3>don't take one month's number, look at what the trends are.

0:05:26.440 --> 0:05:30.600
<v Speaker 3>And to me, the trends show inflation coming down across

0:05:30.640 --> 0:05:33.839
<v Speaker 3>the board multiple months in a row. They show the

0:05:33.920 --> 0:05:38.000
<v Speaker 3>labor market cooling. What we want is for the labor

0:05:38.000 --> 0:05:41.320
<v Speaker 3>market to get into good balance, sort of the full

0:05:41.360 --> 0:05:46.760
<v Speaker 3>employment natural rate. If we're not stopping at that, and

0:05:46.760 --> 0:05:49.240
<v Speaker 3>then we're not neutral and we're going to have to

0:05:49.320 --> 0:05:51.520
<v Speaker 3>be thinking about the employment side of the mandate.

0:05:51.640 --> 0:05:53.679
<v Speaker 1>It's not just about the next cut, it's also about

0:05:53.680 --> 0:05:56.080
<v Speaker 1>the path forward from here. For the people that think

0:05:56.120 --> 0:05:59.400
<v Speaker 1>that you might get multiple even multiple half point right

0:05:59.480 --> 0:06:03.640
<v Speaker 1>cuts through September through November through December, what do you

0:06:04.000 --> 0:06:06.800
<v Speaker 1>tell them in terms of what you expect for the

0:06:07.520 --> 0:06:09.440
<v Speaker 1>entirety of the path going into next year.

0:06:11.000 --> 0:06:13.400
<v Speaker 3>Look, you know, I don't like tie in our hands

0:06:13.440 --> 0:06:16.200
<v Speaker 3>even for the next meeting, so I certainly don't want

0:06:16.240 --> 0:06:19.240
<v Speaker 3>to commit ourselves to what going to be the rate

0:06:19.320 --> 0:06:22.400
<v Speaker 3>path five to seven meetings from now. With all of

0:06:22.400 --> 0:06:26.279
<v Speaker 3>that said, just look at the statement of economic projections

0:06:26.400 --> 0:06:29.800
<v Speaker 3>and you can see that as a committee of the

0:06:29.920 --> 0:06:35.400
<v Speaker 3>individuals believe have believed that the conditions will be appropriate

0:06:35.800 --> 0:06:40.080
<v Speaker 3>to have multiple rate cuts with the unemployment getting into

0:06:40.120 --> 0:06:44.080
<v Speaker 3>better balance and with inflation coming down to target, but

0:06:44.440 --> 0:06:47.000
<v Speaker 3>even at a run rate that's a little higher than

0:06:47.000 --> 0:06:49.240
<v Speaker 3>what we've seen in the last couple of months. So

0:06:49.680 --> 0:06:56.000
<v Speaker 3>it's not any secret. The Fed's been pretty vocal about

0:06:56.279 --> 0:07:00.279
<v Speaker 3>here's what the reaction function is and expecting. As is

0:07:00.440 --> 0:07:05.200
<v Speaker 3>historically true, when conditions weren't a cut, they tend not

0:07:05.279 --> 0:07:10.240
<v Speaker 3>to be one individual cut. The SEP shows that the

0:07:10.440 --> 0:07:14.880
<v Speaker 3>median dot of the dot plot has multiple cuts over

0:07:14.920 --> 0:07:15.520
<v Speaker 3>the next year.

0:07:16.360 --> 0:07:19.640
<v Speaker 2>How weak is the US economy overall? I want to

0:07:19.640 --> 0:07:22.560
<v Speaker 2>point out something that your Governor JB. Pritsker, the governor

0:07:22.600 --> 0:07:26.040
<v Speaker 2>of Illinois, said just two days ago. Interest rates are

0:07:26.080 --> 0:07:30.560
<v Speaker 2>holding companies back from making the investments that are necessary.

0:07:30.880 --> 0:07:33.520
<v Speaker 2>All these companies are companies that are on a generally

0:07:33.720 --> 0:07:37.200
<v Speaker 2>upward trajectory over the last decade, but are having a

0:07:37.240 --> 0:07:39.320
<v Speaker 2>hard time in the moment because of some of the

0:07:39.400 --> 0:07:42.119
<v Speaker 2>challenges the Federal Reserve has brought.

0:07:44.440 --> 0:07:47.320
<v Speaker 3>I mean, in a way that's a description of monetary

0:07:47.360 --> 0:07:51.120
<v Speaker 3>policy that sounds like he's saying policy is restrictive, and

0:07:51.120 --> 0:07:54.440
<v Speaker 3>I agree with them. When the real federal funds rate,

0:07:55.360 --> 0:07:58.760
<v Speaker 3>that is the Fed funds rate minus inflation, that's as

0:07:58.840 --> 0:08:00.960
<v Speaker 3>high as it's been in a very long time. That's

0:08:01.000 --> 0:08:04.360
<v Speaker 3>the highest it's been over the cycle. As inflation comes down.

0:08:04.800 --> 0:08:08.600
<v Speaker 3>We set that rate a year ago at a time

0:08:08.760 --> 0:08:12.000
<v Speaker 3>when conditions were very different than they are now. And

0:08:13.240 --> 0:08:16.840
<v Speaker 3>you should be tightening by choice, not by accident. You

0:08:16.880 --> 0:08:20.120
<v Speaker 3>shouldn't back yourself into tightening. What we need to do

0:08:20.360 --> 0:08:23.960
<v Speaker 3>is take the through line on inflation and on employment,

0:08:24.160 --> 0:08:27.760
<v Speaker 3>and that's what should determine our policy. I don't want

0:08:27.760 --> 0:08:30.880
<v Speaker 3>to argue about the words how good or how weak

0:08:30.960 --> 0:08:33.720
<v Speaker 3>is the economy? Well, the numbers are the numbers. We've

0:08:33.760 --> 0:08:39.120
<v Speaker 3>seen GDP growing around trend. We had one weaker than

0:08:39.160 --> 0:08:41.800
<v Speaker 3>expected GDP growth number at the beginning of the year.

0:08:42.040 --> 0:08:44.679
<v Speaker 3>Then we had a stronger than expected in the second quarter,

0:08:45.240 --> 0:08:50.160
<v Speaker 3>and so we were growing, but it's slowing down. The

0:08:50.240 --> 0:08:53.199
<v Speaker 3>strongest thing in the economy has been the job market.

0:08:53.440 --> 0:08:55.960
<v Speaker 3>The weakest thing in the economy has been the inflation.

0:08:56.520 --> 0:08:59.960
<v Speaker 3>Both of those are converging back to let's call it

0:09:00.120 --> 0:09:05.000
<v Speaker 3>normal or what it was pre pandemic. And our absolute

0:09:05.080 --> 0:09:09.720
<v Speaker 3>goal now is we want to settle at something like

0:09:09.760 --> 0:09:13.760
<v Speaker 3>full employment, not blow through normal and deteriorate.

0:09:14.120 --> 0:09:16.600
<v Speaker 2>Well, I think the major thing that people want to

0:09:16.600 --> 0:09:19.640
<v Speaker 2>know going forward is now you mentioned all the data

0:09:19.640 --> 0:09:21.960
<v Speaker 2>coming up, what are you going to be looking at?

0:09:22.000 --> 0:09:24.320
<v Speaker 2>What is going to what are you going to base

0:09:24.400 --> 0:09:25.880
<v Speaker 2>your interest rate decisions on?

0:09:28.920 --> 0:09:32.520
<v Speaker 3>I mean, the dual mandate comes to us by law.

0:09:32.640 --> 0:09:35.800
<v Speaker 3>The law says the primary things we got to look

0:09:35.840 --> 0:09:39.800
<v Speaker 3>at are inflation and the job market and are we

0:09:39.840 --> 0:09:42.400
<v Speaker 3>maximizing employment? So those are going to be the big

0:09:42.440 --> 0:09:47.760
<v Speaker 3>two kahunahs as we go forward. But it is still

0:09:49.080 --> 0:09:52.160
<v Speaker 3>an economy with cross currents, where you've got some things

0:09:52.240 --> 0:09:56.720
<v Speaker 3>that remain quite strong by historical terms and other things

0:09:56.720 --> 0:10:00.720
<v Speaker 3>that have deteriorated. So if you look at credit card

0:10:00.720 --> 0:10:07.240
<v Speaker 3>delinquencies or small business defaults, those have been rising and

0:10:07.320 --> 0:10:11.840
<v Speaker 3>they have moved into what I call warning sign stage.

0:10:12.280 --> 0:10:15.200
<v Speaker 3>So I'm going to be looking at what Chair Powell

0:10:15.280 --> 0:10:18.680
<v Speaker 3>calls the totality of the data, not just the monthly

0:10:19.320 --> 0:10:24.480
<v Speaker 3>PCE inflation and jobs reports, but the PCE inflation and

0:10:24.520 --> 0:10:27.760
<v Speaker 3>the jobs reports are the big two for sure by law,

0:10:28.400 --> 0:10:28.960
<v Speaker 3>we do have to.

0:10:29.000 --> 0:10:31.040
<v Speaker 1>Leave it there. Wish we had more time, of course,

0:10:31.080 --> 0:10:35.200
<v Speaker 1>that is Bloomberg's Michael McKee and Chicago Fed President Austin Goolsby,

0:10:35.480 --> 0:10:37.840
<v Speaker 1>off the heels of a very highly watched and surprising

0:10:37.960 --> 0:10:39.800
<v Speaker 1>jobs report. We thank you both very much for your

0:10:39.840 --> 0:10:40.120
<v Speaker 1>time