Speaker 1: Bloomberg Audio Studios, podcasts, radio news and now to the
Speaker 1: West Coast Bloomberg and TV and Radio. International economics and
Speaker 1: Policy correspondent Michael McKee is out there catching up on
Speaker 1: the sidelines of the Hoover Institution Monetary Policy Conference at
Speaker 1: Stanford University. That's where we find him sitting down with
Speaker 1: the President of Chicago Fed Austin Goolsby.
Speaker 2: Thanks guys, and thank you very much Austin for joining
Speaker 2: us taking time out from the conference here. Obviously we
Speaker 2: all got up early to watch the jobs report here
Speaker 2: come out at five thirty Pacific time. Did you basically
Speaker 2: walk away from that thinking, Okay, employments off are worry
Speaker 2: list for right now?
Speaker 3: Yeah?
Speaker 4: For the month, I mean, it felt like a pretty
Speaker 4: stable month. The unemployment rate itself holding kind of stable,
Speaker 4: decently positive on the payroll employment growth given the context
Speaker 4: of where we've been, so you never want to make
Speaker 4: too much of one month, but.
Speaker 3: It wasn't a worry point for sure.
Speaker 2: Well, a couple of months in a row now we've
Speaker 2: had decent job creation and an unemployment rate that is
Speaker 2: basically stable. So is inflation the main danger right now?
Speaker 4: It's I've been feeling that as you know, Mike, I'm
Speaker 4: optimistic fundamentally if we get some progress on inflation and
Speaker 4: we show we're headed back to the to a path
Speaker 4: of on our way to two percent inflation, I'm optimistic
Speaker 4: rates can go down. We just haven't been having that
Speaker 4: now for some time, and that makes me more concerned
Speaker 4: and I'm less I'm less optimistic. We've been above the
Speaker 4: two percent fed inflation target for five years, and we
Speaker 4: were at least making progress for much of that time.
Speaker 4: Last year we stopped making progress.
Speaker 3: And the hope was the pause.
Speaker 4: And progress was going to be temporary as the tariffs
Speaker 4: increased one time cost one time and then went away,
Speaker 4: that we would add now an oil shock on top
Speaker 4: of things before the other went away. So we're not
Speaker 4: really sure if or when that part's going to go away.
Speaker 4: I think for me makes inflation the that's the topic
Speaker 4: of the moment.
Speaker 3: We got to get some clarity.
Speaker 2: Well, then, where do you stand on the bias debate?
Speaker 2: You didn't join in. You weren't a voter, so you
Speaker 2: couldn't you couldn't vote to dissent, But do you support
Speaker 2: are you sympathetic to that idea?
Speaker 3: I look, before I ever got to the FED.
Speaker 4: I was always a little publicly skeptical about the value
Speaker 4: slash appropriateness of using forward guidance to begin with saying
Speaker 4: things that the committee doesn't think it's going to do
Speaker 4: X thing for some number of months, or committing itself
Speaker 4: to to actions well in the future.
Speaker 3: I think that that can.
Speaker 4: Be unwise to use at moments where we're not at
Speaker 4: the zero lower.
Speaker 3: Bound when you were.
Speaker 4: That kind of behavior really started when we're at the
Speaker 4: zero lower bound, when you can't change the rates. Now
Speaker 4: we're not in that in that circumstance, I usually don't
Speaker 4: get too worked up about the exact wording of the
Speaker 4: statement of this kind of form, because we don't know
Speaker 4: what the conditions are that the committee is going to
Speaker 4: be facing even at the next meeting, much less multiple
Speaker 4: meetings in the future. So let's just just take a step,
Speaker 4: take a step back, and take a deep breath. To
Speaker 4: the extent that incoming chair Wash says he wants us
Speaker 4: to think about communications in the statement, he's expressed some
Speaker 4: not regrets, but some reservations, let's say, about the use
Speaker 4: of forward guidance.
Speaker 3: I'm pretty sympathetic with.
Speaker 2: His view well as a decision by most people to
Speaker 2: leave the biased statement in as it was basically sort
Speaker 2: of not tying the hands of the incoming chairman.
Speaker 4: I don't know, you know the rules, I'm not allowed to.
Speaker 4: I could speak only for what I think, not for
Speaker 4: what anybody else thinks or what's behind their votes. I
Speaker 4: don't see how you can look at the current situation
Speaker 4: and at least to me, view that the only thing
Speaker 4: that's on the table conceivably are rate cuts. Inflations have
Speaker 4: been above the target for five years, stalled out, the
Speaker 4: progress stalled out last year. In the last three or
Speaker 4: four months, you've seen it deep deteriorating. The inflation rate
Speaker 4: is rising, The new data that are coming in are
Speaker 4: worse than the months before, and you're seeing it in
Speaker 4: categories where it's not supposed to be if it was
Speaker 4: just tariffs or oil prices, like core services inflation. So
Speaker 4: I'm still hopeful that that's going to prove temporary. But
Speaker 4: we if we start to see a deterioration of inflation
Speaker 4: expectations and the unemployment rate and the job market looks stable,
Speaker 4: I don't I think for all credibility of the FED,
Speaker 4: we have to be paying attention to the inflation rate
Speaker 4: when it's deteriorating and going the wrong way.
Speaker 2: Well, let me ask you about what you think of
Speaker 2: expectations right now, because in his last press conference, J.
Speaker 2: Powell noted that we'd had this series of supply shocks
Speaker 2: and that people were maybe getting used to the idea
Speaker 2: that inflation is normally this high.
Speaker 3: Yeah, that's bad.
Speaker 4: I mean if we start to see that in the data.
Speaker 4: As you know, we've got a long history in the
Speaker 4: United States and in other countries that if people begin
Speaker 4: assuming that inflation is going to continue at higher than
Speaker 4: desired rates, it.
Speaker 3: Becomes a lot harder to get rid.
Speaker 4: Of the inflation, and it puts the central bank in
Speaker 4: a lot tougher.
Speaker 2: Do you think that's what people are thinking these days?
Speaker 3: I hope not.
Speaker 4: But in history, when the price of oil, specifically price
Speaker 4: of gasoline, very public price, when it goes up, there
Speaker 4: is a lot of consumer level expectation that responds to
Speaker 4: the price of gasoline in kind of an outsized way.
Speaker 4: So before it showed up in the data, as soon
Speaker 4: as the war began in the price of oil surge,
Speaker 4: I said, I would not be surprised if we saw
Speaker 4: a significant deterioration of consumer confidence, which we then did
Speaker 4: and we better keep an eye on the on the
Speaker 4: inflation expectations because a lot of times.
Speaker 3: It has open its lowest Michigan numbers yep.
Speaker 2: Ever today but if you raise rates, it's not going
Speaker 2: to open the strait of Hormuz.
Speaker 3: It's not going to be agree.
Speaker 2: So is that a viable strategy at this point or
Speaker 2: are you risking demand destruction?
Speaker 4: Yeah, you are risking demand destruction, and you know you're
Speaker 4: just restating slash rediscovering what makes stagflationary shocks among the
Speaker 4: worst things that a central bank has to deal with,
Speaker 4: because if you face a negative supply shock that destroys
Speaker 4: employment and drives up prices at the same time, raising
Speaker 4: the rates doesn't solve your problem.
Speaker 3: Cutting the race doesn't solve your problem, and leaving your
Speaker 3: rates where they are doesn't solve your problem.
Speaker 4: So the monetary framework that we passed unanimously. In it,
Speaker 4: we've thought about, well, what would we do if we
Speaker 4: get shocks that are hitting both sides of the mandate
Speaker 4: at the same time, And we said, quite reasonably, we'll
Speaker 4: look at which side is deviating more and how long
Speaker 4: do we think the deviation is going to last. I
Speaker 4: still think that's the reasonable way to think about it.
Speaker 4: But I would emphasize, as I say, the job market
Speaker 4: has been stable for a year, year and a half.
Speaker 4: The part that is deteriorating, and what has moved me
Speaker 4: from optimistic about rate cuts to less optimistic is that
Speaker 4: inflation alone is getting worse. It's not even stalled out
Speaker 4: in progress, it's getting worse, whereas the job market has
Speaker 4: been stable. So I kind of think by the criteria
Speaker 4: we outlined in that framework review, we got to it
Speaker 4: behooves us to take a serious look at what's happening
Speaker 4: on the inflation side.
Speaker 2: Well, we assume a week from today there will be
Speaker 2: a new chair of the FED and away from policy.
Speaker 2: In terms of policy making, there are changes he wants
Speaker 2: to make. Let me run through a few of them
Speaker 2: and see what you're thinking. One of the things he's
Speaker 2: concerned about is the dot plot and the SEP and
Speaker 2: the fact that everybody focuses on the media. And would
Speaker 2: you be in favor of eliminating or changing either one
Speaker 2: of those?
Speaker 3: I could be.
Speaker 4: I mean, I'm going to be interested to see what,
Speaker 4: presuming he's confirmed his chairman, see what he proposes.
Speaker 3: I've written.
Speaker 4: In past years about some dissatisfactions that I've had about
Speaker 4: the release of the dot plots and the ways in
Speaker 4: which it doesn't help to identify what the reaction function
Speaker 4: is of the committee. So I think that Kevin Walsh
Speaker 4: is going to come in with a lot of new
Speaker 4: ideas on monetary policy, on balance sheet, on communication and those.
Speaker 3: I think it's good.
Speaker 4: We let's have some Let's have some new ideas and
Speaker 4: think those through.
Speaker 3: Well.
Speaker 2: The balance sheet, of course, is the big question. He
Speaker 2: wants to bring it down. There's a couple different ways
Speaker 2: you can do it. Do you think the balance sheet
Speaker 2: needs to be smaller? And if so, how would you
Speaker 2: go about it?
Speaker 4: I don't know about needs to be smaller, can be
Speaker 4: smaller depends in a large measure, how you conduct monetary policy.
Speaker 4: As you know, in the older days, up to two
Speaker 4: thousand and eight, we conducted monetary policy mostly through open
Speaker 4: market operations. Now we've shifted to this, as we call it,
Speaker 4: the ample reserves res GIM. We pay interest on reserves.
Speaker 4: That's a different way of doing monetary policy, and it
Speaker 4: corresponds with a bigger balance.
Speaker 3: Sheet than the old way.
Speaker 4: You could do it any number of ways, and like
Speaker 4: I say, it's not my position to weigh in and
Speaker 4: say I want us to do it a B or
Speaker 4: C direction, in I'm interested in seeing what the new
Speaker 4: chair has in mind and evaluating.
Speaker 2: That it's gonna be a fun new voyage. He'll take
Speaker 2: over maybe next Friday. We'll have you back Monday to
Speaker 2: talk about how everything has changed, right, but hopefully we
Speaker 2: will have you back soon. Austin Gilsby. He is the
Speaker 2: president of the Chicago Federal Reserve.