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Speaker 1: From Assma, Colorado for our Bloomberg Television radio auditions worldwide.

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Speaker 1: I'm David Weston. I'm delighted to be joined right now

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Speaker 1: by the Federal the president of the Chicago Fed. He

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Speaker 1: is Austin Goolsby. Austin, thanks for being here. So we're

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Speaker 1: out here for the Aspen Economic Strategy Group meetings. A

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Speaker 1: lot of talk about fiscal issues, monetary issues, but we

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Speaker 1: all I have now the key job figures a little

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Speaker 1: bit lighter than expected, one hundred and eighty seven thousand,

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Speaker 1: set of two hundred thousand, little heavier than expected. On

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Speaker 1: the wages, what did you take them?

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Speaker 2: It's pretty much what we expected.

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Speaker 3: I mean, let's remember the job's number is whatever it is,

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Speaker 3: plus or minus one hundred and twenty thousand a month,

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Speaker 3: so there's no point quibbling over numbers. The job market

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Speaker 3: is cooling a little too kind of a balanced level,

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Speaker 3: but it's still extremely strong. That's the strongest part of

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Speaker 3: the economy by far, is how low the unemployment rate

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Speaker 3: is and people can.

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Speaker 2: Get a job if they want a job.

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Speaker 1: To that point of being tight, one hundred and seven

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Speaker 1: thousand plus or minus is still way more than you

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Speaker 1: need just to catch up to keep even with the

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Speaker 1: new people coming into the workforce. So it is tightening

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Speaker 1: in that sense, is it not. I think that's right.

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Speaker 3: You know, let's say one hundred thousand just from population

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Speaker 3: and what's coming into the workforce. So it's stronger than that.

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Speaker 3: It's been the surprise of the year, of the six

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Speaker 3: months that all of the people that folks thought were

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Speaker 3: gone from the labor force never to return, a lot

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Speaker 3: of them are coming back.

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Speaker 2: You know.

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Speaker 3: When it's when the job market is as strong as that,

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Speaker 3: you've seen labor force participation rise back to levels that

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Speaker 3: we hadn't seen for several years at least. So that's

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Speaker 3: been great. I mean that that's the strongest part of

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Speaker 3: the economy.

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Speaker 1: Yeah, none of us wants anybody to be out of

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Speaker 1: a job, so it's a good thing. It's just may

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Speaker 1: be the other jobs. But what about the wages where

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Speaker 1: now these numbers were four point four percent year over

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Speaker 1: year I believe it was. That doesn't sound like something

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Speaker 1: consistent with getting to two percent inflation overall.

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Speaker 2: The way I view it is two things.

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Speaker 3: One can't say anything about wages until you actually know

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Speaker 3: what's happening with productivity. We got some productivity numbers. They

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Speaker 3: were strong for the quarter. That's very noisy. But if

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Speaker 3: you have strong productivity growth, you can have wage growth

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Speaker 3: and it doesn't generate inflation.

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Speaker 2: And the other thing about wages is.

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Speaker 3: They're not a leading indicator of price inflation.

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Speaker 2: They're backward looking. They move. Wages move more slowly.

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Speaker 3: When things happen, we get shocks, the prices move first

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Speaker 3: and then the wages. So when we see what's happening

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Speaker 3: to wages today, this is kind of an amalgam of

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Speaker 3: a bunch.

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Speaker 2: Of stuff that already occurred.

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Speaker 3: I think if you want to know if you're beaten inflation,

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Speaker 3: go watch the inflation. You know, the price series and

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Speaker 3: especially the new months of inflation in the core.

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Speaker 2: That's really what you want to be Why.

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Speaker 1: What are those numbers telling you right now? Particularly goods inflation?

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Speaker 1: Is it a bit stickier than you're so on?

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Speaker 3: It has been, but the last couple of readings have

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Speaker 3: been pretty positive. It's important that you raise this goods loosely.

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Speaker 2: If you look at core.

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Speaker 3: Inflation, you got goods, you got housing, you got services

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Speaker 3: not including housing, And we've much remarked on the stickiness

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Speaker 3: and persistence of services inflation. But we knew that that

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Speaker 3: that's not where we went wrong over at the end

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Speaker 3: of last year beginning of this year, with inflation lasting

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Speaker 3: a little longer than we thought, it has been that

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Speaker 3: goods prices, while down, have not gone all the way

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Speaker 3: down to where they were before the pandemic. I feel

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Speaker 3: like that's kind of started and that's put the FED

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Speaker 3: on this line.

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Speaker 2: I mean, it's a thin line.

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Speaker 3: To walk, but getting the prices down without having a

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Speaker 3: big recession. We're gonna Johnny cash this thing and walk

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Speaker 3: that line, and that that's for sure the goal. And

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Speaker 3: goods prices got to come down. And then the next

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Speaker 3: one's got to be housing. As you know, it's the

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Speaker 3: The housing that's in the CPI is based on a

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Speaker 3: bunch of market rents and it takes a while to

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Speaker 3: flow through. So hopefully as we go into the fall,

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Speaker 3: that's that's going to be the next one.

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Speaker 1: So I was just gonna stick with the Johnny cash. Yeah,

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Speaker 1: walk in that line. How long is the line? And

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Speaker 1: we know that the target is two percent. It doesn't

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Speaker 1: feel like you're going to come off that two percent goal,

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Speaker 1: But how long until you get there? How patient can

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Speaker 1: you be?

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Speaker 2: We got to be somewhat patient.

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Speaker 3: You know, take as just a microcosmic example to sing

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Speaker 3: with housing. We've seen the market rents coming down, but

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Speaker 3: it takes a while for that to flow through into

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Speaker 3: the let's call it the average housing prices that are

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Speaker 3: in the CPI.

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Speaker 2: And it's got to be patient.

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Speaker 3: I know everybody wants to say, ah, fine, vove, we're done.

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Speaker 2: That's that's not how it works.

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Speaker 3: If you walk the golden path and you walk that line,

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Speaker 3: it's it's going to take a while. And the rather

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Speaker 3: than arguing about the peak rate of how many more

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Speaker 3: rate increases do there need to be, what we should

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Speaker 3: probably start thinking about is that, well, how long does

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Speaker 3: this last that you're going to be at these elevated rates.

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Speaker 3: It's been a five hundred plus basis point increase over

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Speaker 3: a relatively short period. If you hold at five and

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Speaker 3: a quarter, five and a half, five and whatever while

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Speaker 3: inflation goes down, that is a restrictive environment.

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Speaker 2: Holding is increasing restrictiveness in that sense.

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Speaker 1: Austin, let me ask you one of the questions that

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Speaker 1: came up this week, which is the Fitch rating on

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Speaker 1: the US sovereign debt that took out surprise a lot

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Speaker 1: of people. I think is it important And I'm not

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Speaker 1: saying was the rating important of itself, but is what

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Speaker 1: they're pointing toward important.

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Speaker 3: In a vague sense? Yes, but everybody knows that. I mean,

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Speaker 3: we went through the debt ceiling. Every day we're talking

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Speaker 3: about this dysfunctional. We've got to get out of this dynamic.

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Speaker 3: I was around in Washington the last time we went

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Speaker 3: through this downgrade thing. There's a couple of things I

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Speaker 3: don't understand about it. Ultimately, I don't think it's gonna

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Speaker 3: make that much difference. This isn't like some obscure stock

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Speaker 3: or bond that nobody knows and it's ah, the rating

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Speaker 3: agency went and looked at it, so you don't have to.

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Speaker 3: I mean, this is US Treasury is the most observed

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Speaker 3: market with the most information in the entire world. So uh,

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Speaker 3: I don't know what their motivation was. I'm not gonna

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Speaker 3: I'm not gonna guess at that, but I guess I

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Speaker 3: don't see how something else is going to be rated

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Speaker 3: triple A. If they were defaulting on US treasuries, it

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Speaker 3: seems like that would be a bad day for the market.

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Speaker 1: But as as I ask you a different question, we've

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Speaker 1: heard various Fed presidents J Powell, but also John, you

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Speaker 1: don't talk about the fiscal sustainability of the path of

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Speaker 1: the United States is and especially some concern of the

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Speaker 1: long term that it's not sustainable. If that's right, what

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Speaker 1: are the consequences of that, and what if anything can

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Speaker 1: be done about it.

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Speaker 3: That's a whole separate topic from the you know, what

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Speaker 3: should the ratings of treasuries be for?

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Speaker 2: Right now?

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Speaker 3: We fit in both that right in there, Yes, announcement,

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Speaker 3: But then the proper question is did something happen in

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Speaker 3: the last two weeks that made you think that was different?

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Speaker 2: As you know, the FED.

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Speaker 3: Doesn't weigh in on fiscal policy. Congress and the administrations

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Speaker 3: they have to sort that out. I think my read

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Speaker 3: of the evidence is exactly what you say that the

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Speaker 3: long run there's a fiscal gap in the United States.

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Speaker 3: That long run gap smaller in the United States than

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Speaker 3: in most of the advanced if not all, of the

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Speaker 3: advanced economies of the world, because our demographics are better.

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Speaker 2: It's rooted in the aging of.

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Speaker 3: The population and social security and medicare and things like that,

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Speaker 3: and the US has got some choices that it has

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Speaker 3: to make, but gets to make in a way that

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Speaker 3: some other countries don't get to make them. They already

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Speaker 3: have income tax rates higher than our raids. They already

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Speaker 3: have twenty five percent vats, They have worse demographics, their

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Speaker 3: spending levels already higher. To start with those fiscal questions,

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Speaker 3: will they will be with us for decades because the

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Speaker 3: baby boomers are going to we all retire, I think,

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Speaker 3: you know the over the next couple of decades. That's

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Speaker 3: different from what we're trying to do with the FED.

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Speaker 3: You know, our job is we accept the.

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Speaker 2: Economy as it is.

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Speaker 3: We go watch the data and we maximize employment, stabilize prices.

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Speaker 2: That's what we're going to do.

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Speaker 1: One other development this week, a lot of people have

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Speaker 1: knowned as Bank of America changed their call and recession.

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Speaker 1: They had been predicting recession in the fourth core.

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Speaker 2: This year or the first of the next.

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Speaker 1: And that's sort of trails where we heard actually from

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Speaker 1: the Fed shair last year week that the FED staff

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Speaker 1: now has taken in recession.

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Speaker 2: Designer sent off, We're going to walk that line. That's

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Speaker 2: what I'm telling is that golden path. That's what we

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Speaker 2: got to stay on. Is that where you are.

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Speaker 3: I don't know if it's just what I want or

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Speaker 3: if that's where I am. But I feel like we've

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Speaker 3: been getting promising numbers on inflation. The new months of inflation,

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Speaker 3: in core inflation, especially goods and especially housing over the

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Speaker 3: next several months. That's what let's keep an eye on.

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Speaker 3: That will tell us are we on this golden path

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Speaker 3: or not. If we are able to pull us off,

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Speaker 3: that will be a triumph. There are many smart people,

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Speaker 3: and you've talked to them on the air, who say

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Speaker 3: it's impossible. The FED, kids, the FED has never been

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Speaker 3: able to reduce inflation as much as we're reducing and

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Speaker 3: we need to now without generating a big increase in

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Speaker 3: the unemployment rate and a big recession. And while that

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Speaker 3: has historically been true, this was a weird business cycle,

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Speaker 3: it can be a weird recovery. And I am hopeful

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Speaker 3: that we can pull it off, and so far we've

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Speaker 3: been doing it. You know, if you look back a year,

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Speaker 3: the unemployment rate is not a and inflation has come

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Speaker 3: way down.

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Speaker 1: If I keep down a little bit, I think this

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Speaker 1: month if anything can Yeah, I tell you right from

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Speaker 1: what was expected, but absolutely clear on this. You think

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Speaker 1: that we can get inflation under control with unemployment rate

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Speaker 1: in the mid threes.

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Speaker 2: I don't know if it's exactly the mid threes.

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Speaker 3: What my goal and I think that we can pull off,

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Speaker 3: and it's what we should try, is to stay on

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Speaker 3: a path where you get inflation down and you don't

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Speaker 3: have a major recession. And there are a lot of

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Speaker 3: people who if you have in your mind this stable

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Speaker 3: relationship trade off between unemployment and inflation, that's the golden path,

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Speaker 3: is impossible. But if you believe that the data have

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Speaker 3: just not been backing that up. We've gotten inflation down

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Speaker 3: a fair amount without increasing the unemployment rate, and the

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Speaker 3: job market does.

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Speaker 2: Need to get into balance.

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Speaker 3: We have been in spots where it's been out of

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Speaker 3: balance so hot that it's that it's it's not stable.

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Speaker 2: But we're we're doing that over these past couple of months.

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Speaker 3: You see the quit rate, you see the vacancy rate

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Speaker 3: relative to how many unemployed there are, and you see

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Speaker 3: the jobs numbers pulling more into balance.

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Speaker 1: Walk that line, Walk that line. Okay, Austin goes with,

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Speaker 1: thank you so much. He is the president, of course

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Speaker 1: of the Chicago Fed.