WEBVTT - Chicago Fed President Austan Goolsbee Talks Jobs Report, Potential for Rates to Go Down 0:00:02.520 --> 0:00:08.200 Bloomberg Audio Studios, podcasts, radio news and now to the 0:00:08.240 --> 0:00:11.680 West Coast Bloomberg and TV and Radio. International economics and 0:00:11.680 --> 0:00:14.760 Policy correspondent Michael McKee is out there catching up on 0:00:14.800 --> 0:00:17.880 the sidelines of the Hoover Institution Monetary Policy Conference at 0:00:17.880 --> 0:00:20.799 Stanford University. That's where we find him sitting down with 0:00:20.840 --> 0:00:22.960 the President of Chicago Fed Austin Goolsby. 0:00:23.960 --> 0:00:26.640 Thanks guys, and thank you very much Austin for joining 0:00:26.720 --> 0:00:30.200 us taking time out from the conference here. Obviously we 0:00:30.240 --> 0:00:33.000 all got up early to watch the jobs report here 0:00:33.320 --> 0:00:37.760 come out at five thirty Pacific time. Did you basically 0:00:37.800 --> 0:00:41.800 walk away from that thinking, Okay, employments off are worry 0:00:41.800 --> 0:00:42.599 list for right now? 0:00:43.040 --> 0:00:43.199 Yeah? 0:00:43.280 --> 0:00:46.680 For the month, I mean, it felt like a pretty 0:00:46.720 --> 0:00:52.559 stable month. The unemployment rate itself holding kind of stable, 0:00:52.920 --> 0:00:58.160 decently positive on the payroll employment growth given the context 0:00:58.240 --> 0:01:02.840 of where we've been, so you never want to make 0:01:02.880 --> 0:01:04.959 too much of one month, but. 0:01:06.040 --> 0:01:07.600 It wasn't a worry point for sure. 0:01:07.800 --> 0:01:09.240 Well, a couple of months in a row now we've 0:01:09.240 --> 0:01:12.040 had decent job creation and an unemployment rate that is 0:01:12.120 --> 0:01:16.480 basically stable. So is inflation the main danger right now? 0:01:16.959 --> 0:01:20.960 It's I've been feeling that as you know, Mike, I'm 0:01:21.160 --> 0:01:27.720 optimistic fundamentally if we get some progress on inflation and 0:01:28.080 --> 0:01:31.279 we show we're headed back to the to a path 0:01:31.360 --> 0:01:35.920 of on our way to two percent inflation, I'm optimistic 0:01:36.040 --> 0:01:40.040 rates can go down. We just haven't been having that 0:01:40.360 --> 0:01:43.640 now for some time, and that makes me more concerned 0:01:43.680 --> 0:01:48.680 and I'm less I'm less optimistic. We've been above the 0:01:48.720 --> 0:01:53.040 two percent fed inflation target for five years, and we 0:01:53.080 --> 0:01:56.800 were at least making progress for much of that time. 0:01:57.400 --> 0:01:59.880 Last year we stopped making progress. 0:01:59.800 --> 0:02:02.400 And the hope was the pause. 0:02:02.040 --> 0:02:06.840 And progress was going to be temporary as the tariffs 0:02:06.840 --> 0:02:09.880 increased one time cost one time and then went away, 0:02:11.680 --> 0:02:15.960 that we would add now an oil shock on top 0:02:16.200 --> 0:02:19.080 of things before the other went away. So we're not 0:02:19.280 --> 0:02:23.080 really sure if or when that part's going to go away. 0:02:23.320 --> 0:02:27.480 I think for me makes inflation the that's the topic 0:02:27.520 --> 0:02:28.040 of the moment. 0:02:28.280 --> 0:02:29.440 We got to get some clarity. 0:02:29.840 --> 0:02:32.000 Well, then, where do you stand on the bias debate? 0:02:32.280 --> 0:02:35.440 You didn't join in. You weren't a voter, so you 0:02:35.520 --> 0:02:39.919 couldn't you couldn't vote to dissent, But do you support 0:02:40.040 --> 0:02:41.600 are you sympathetic to that idea? 0:02:42.800 --> 0:02:45.160 I look, before I ever got to the FED. 0:02:45.560 --> 0:02:49.840 I was always a little publicly skeptical about the value 0:02:49.960 --> 0:02:54.680 slash appropriateness of using forward guidance to begin with saying 0:02:54.880 --> 0:02:58.720 things that the committee doesn't think it's going to do 0:02:59.360 --> 0:03:04.960 X thing for some number of months, or committing itself 0:03:05.040 --> 0:03:07.320 to to actions well in the future. 0:03:07.880 --> 0:03:09.639 I think that that can. 0:03:09.520 --> 0:03:13.680 Be unwise to use at moments where we're not at 0:03:13.680 --> 0:03:14.800 the zero lower. 0:03:14.520 --> 0:03:15.280 Bound when you were. 0:03:16.280 --> 0:03:20.800 That kind of behavior really started when we're at the 0:03:20.919 --> 0:03:26.520 zero lower bound, when you can't change the rates. Now 0:03:26.560 --> 0:03:30.440 we're not in that in that circumstance, I usually don't 0:03:30.560 --> 0:03:34.800 get too worked up about the exact wording of the 0:03:34.880 --> 0:03:39.800 statement of this kind of form, because we don't know 0:03:39.880 --> 0:03:42.120 what the conditions are that the committee is going to 0:03:42.120 --> 0:03:46.040 be facing even at the next meeting, much less multiple 0:03:46.080 --> 0:03:51.480 meetings in the future. So let's just just take a step, 0:03:51.960 --> 0:03:54.400 take a step back, and take a deep breath. To 0:03:54.440 --> 0:03:58.880 the extent that incoming chair Wash says he wants us 0:03:58.920 --> 0:04:03.760 to think about communications in the statement, he's expressed some 0:04:04.960 --> 0:04:09.000 not regrets, but some reservations, let's say, about the use 0:04:09.000 --> 0:04:09.920 of forward guidance. 0:04:10.400 --> 0:04:11.720 I'm pretty sympathetic with. 0:04:11.680 --> 0:04:15.880 His view well as a decision by most people to 0:04:16.240 --> 0:04:20.360 leave the biased statement in as it was basically sort 0:04:20.360 --> 0:04:22.960 of not tying the hands of the incoming chairman. 0:04:24.320 --> 0:04:26.280 I don't know, you know the rules, I'm not allowed to. 0:04:26.279 --> 0:04:28.600 I could speak only for what I think, not for 0:04:28.640 --> 0:04:35.159 what anybody else thinks or what's behind their votes. I 0:04:35.240 --> 0:04:38.600 don't see how you can look at the current situation 0:04:39.600 --> 0:04:45.440 and at least to me, view that the only thing 0:04:45.560 --> 0:04:51.320 that's on the table conceivably are rate cuts. Inflations have 0:04:51.400 --> 0:04:54.680 been above the target for five years, stalled out, the 0:04:54.680 --> 0:04:58.120 progress stalled out last year. In the last three or 0:04:58.120 --> 0:05:01.719 four months, you've seen it deep deteriorating. The inflation rate 0:05:01.880 --> 0:05:04.000 is rising, The new data that are coming in are 0:05:04.040 --> 0:05:07.760 worse than the months before, and you're seeing it in 0:05:08.200 --> 0:05:11.279 categories where it's not supposed to be if it was 0:05:11.400 --> 0:05:16.599 just tariffs or oil prices, like core services inflation. So 0:05:18.680 --> 0:05:22.279 I'm still hopeful that that's going to prove temporary. But 0:05:23.320 --> 0:05:28.120 we if we start to see a deterioration of inflation 0:05:28.240 --> 0:05:33.919 expectations and the unemployment rate and the job market looks stable, 0:05:34.920 --> 0:05:38.119 I don't I think for all credibility of the FED, 0:05:38.360 --> 0:05:41.039 we have to be paying attention to the inflation rate 0:05:41.040 --> 0:05:43.760 when it's deteriorating and going the wrong way. 0:05:43.960 --> 0:05:46.279 Well, let me ask you about what you think of 0:05:46.400 --> 0:05:49.400 expectations right now, because in his last press conference, J. 0:05:49.560 --> 0:05:53.240 Powell noted that we'd had this series of supply shocks 0:05:53.440 --> 0:05:56.080 and that people were maybe getting used to the idea 0:05:56.520 --> 0:05:59.120 that inflation is normally this high. 0:05:59.240 --> 0:05:59.920 Yeah, that's bad. 0:06:00.240 --> 0:06:03.000 I mean if we start to see that in the data. 0:06:03.200 --> 0:06:05.960 As you know, we've got a long history in the 0:06:06.040 --> 0:06:09.920 United States and in other countries that if people begin 0:06:10.160 --> 0:06:14.600 assuming that inflation is going to continue at higher than 0:06:14.680 --> 0:06:16.520 desired rates, it. 0:06:16.560 --> 0:06:19.159 Becomes a lot harder to get rid. 0:06:18.960 --> 0:06:22.320 Of the inflation, and it puts the central bank in 0:06:22.400 --> 0:06:23.719 a lot tougher. 0:06:24.360 --> 0:06:26.440 Do you think that's what people are thinking these days? 0:06:26.480 --> 0:06:27.080 I hope not. 0:06:27.360 --> 0:06:33.839 But in history, when the price of oil, specifically price 0:06:33.880 --> 0:06:39.000 of gasoline, very public price, when it goes up, there 0:06:39.080 --> 0:06:43.000 is a lot of consumer level expectation that responds to 0:06:43.080 --> 0:06:45.560 the price of gasoline in kind of an outsized way. 0:06:45.880 --> 0:06:49.200 So before it showed up in the data, as soon 0:06:49.240 --> 0:06:51.720 as the war began in the price of oil surge, 0:06:51.960 --> 0:06:55.240 I said, I would not be surprised if we saw 0:06:55.320 --> 0:06:59.760 a significant deterioration of consumer confidence, which we then did 0:07:01.200 --> 0:07:04.840 and we better keep an eye on the on the 0:07:04.880 --> 0:07:07.400 inflation expectations because a lot of times. 0:07:07.279 --> 0:07:09.720 It has open its lowest Michigan numbers yep. 0:07:10.000 --> 0:07:14.200 Ever today but if you raise rates, it's not going 0:07:14.240 --> 0:07:15.560 to open the strait of Hormuz. 0:07:15.600 --> 0:07:17.560 It's not going to be agree. 0:07:17.960 --> 0:07:22.000 So is that a viable strategy at this point or 0:07:22.000 --> 0:07:24.640 are you risking demand destruction? 0:07:24.760 --> 0:07:27.720 Yeah, you are risking demand destruction, and you know you're 0:07:27.880 --> 0:07:35.280 just restating slash rediscovering what makes stagflationary shocks among the 0:07:35.280 --> 0:07:38.040 worst things that a central bank has to deal with, 0:07:38.280 --> 0:07:42.600 because if you face a negative supply shock that destroys 0:07:42.640 --> 0:07:47.360 employment and drives up prices at the same time, raising 0:07:47.400 --> 0:07:49.280 the rates doesn't solve your problem. 0:07:49.520 --> 0:07:51.600 Cutting the race doesn't solve your problem, and leaving your 0:07:51.640 --> 0:07:53.640 rates where they are doesn't solve your problem. 0:07:54.040 --> 0:07:59.960 So the monetary framework that we passed unanimously. In it, 0:08:00.200 --> 0:08:02.480 we've thought about, well, what would we do if we 0:08:02.600 --> 0:08:05.080 get shocks that are hitting both sides of the mandate 0:08:05.080 --> 0:08:09.080 at the same time, And we said, quite reasonably, we'll 0:08:09.120 --> 0:08:12.640 look at which side is deviating more and how long 0:08:12.680 --> 0:08:14.960 do we think the deviation is going to last. I 0:08:15.000 --> 0:08:18.080 still think that's the reasonable way to think about it. 0:08:19.120 --> 0:08:22.640 But I would emphasize, as I say, the job market 0:08:22.720 --> 0:08:25.200 has been stable for a year, year and a half. 0:08:25.600 --> 0:08:28.760 The part that is deteriorating, and what has moved me 0:08:28.920 --> 0:08:34.320 from optimistic about rate cuts to less optimistic is that 0:08:34.480 --> 0:08:39.959 inflation alone is getting worse. It's not even stalled out 0:08:39.960 --> 0:08:43.520 in progress, it's getting worse, whereas the job market has 0:08:43.559 --> 0:08:46.440 been stable. So I kind of think by the criteria 0:08:46.520 --> 0:08:51.319 we outlined in that framework review, we got to it 0:08:52.160 --> 0:08:55.440 behooves us to take a serious look at what's happening 0:08:55.679 --> 0:08:56.720 on the inflation side. 0:08:56.760 --> 0:08:58.959 Well, we assume a week from today there will be 0:08:59.000 --> 0:09:02.400 a new chair of the FED and away from policy. 0:09:02.800 --> 0:09:06.199 In terms of policy making, there are changes he wants 0:09:06.240 --> 0:09:08.320 to make. Let me run through a few of them 0:09:08.360 --> 0:09:11.360 and see what you're thinking. One of the things he's 0:09:11.440 --> 0:09:13.840 concerned about is the dot plot and the SEP and 0:09:13.880 --> 0:09:17.199 the fact that everybody focuses on the media. And would 0:09:17.200 --> 0:09:19.839 you be in favor of eliminating or changing either one 0:09:19.840 --> 0:09:20.199 of those? 0:09:21.280 --> 0:09:21.800 I could be. 0:09:22.000 --> 0:09:24.040 I mean, I'm going to be interested to see what, 0:09:25.840 --> 0:09:28.960 presuming he's confirmed his chairman, see what he proposes. 0:09:29.440 --> 0:09:30.520 I've written. 0:09:31.840 --> 0:09:37.120 In past years about some dissatisfactions that I've had about 0:09:37.200 --> 0:09:41.120 the release of the dot plots and the ways in 0:09:41.160 --> 0:09:45.320 which it doesn't help to identify what the reaction function 0:09:45.480 --> 0:09:50.800 is of the committee. So I think that Kevin Walsh 0:09:50.920 --> 0:09:53.360 is going to come in with a lot of new 0:09:53.400 --> 0:09:58.200 ideas on monetary policy, on balance sheet, on communication and those. 0:09:58.360 --> 0:09:59.040 I think it's good. 0:09:59.120 --> 0:10:02.520 We let's have some Let's have some new ideas and 0:10:02.559 --> 0:10:03.199 think those through. 0:10:03.440 --> 0:10:03.600 Well. 0:10:03.640 --> 0:10:05.960 The balance sheet, of course, is the big question. He 0:10:06.040 --> 0:10:08.760 wants to bring it down. There's a couple different ways 0:10:08.800 --> 0:10:11.760 you can do it. Do you think the balance sheet 0:10:11.840 --> 0:10:15.280 needs to be smaller? And if so, how would you 0:10:15.320 --> 0:10:15.880 go about it? 0:10:17.120 --> 0:10:20.160 I don't know about needs to be smaller, can be 0:10:20.280 --> 0:10:25.160 smaller depends in a large measure, how you conduct monetary policy. 0:10:25.480 --> 0:10:28.920 As you know, in the older days, up to two 0:10:29.000 --> 0:10:34.000 thousand and eight, we conducted monetary policy mostly through open 0:10:34.040 --> 0:10:38.200 market operations. Now we've shifted to this, as we call it, 0:10:38.240 --> 0:10:41.520 the ample reserves res GIM. We pay interest on reserves. 0:10:42.040 --> 0:10:45.199 That's a different way of doing monetary policy, and it 0:10:45.600 --> 0:10:47.520 corresponds with a bigger balance. 0:10:47.160 --> 0:10:49.320 Sheet than the old way. 0:10:49.800 --> 0:10:52.640 You could do it any number of ways, and like 0:10:52.679 --> 0:10:56.040 I say, it's not my position to weigh in and 0:10:56.080 --> 0:10:58.760 say I want us to do it a B or 0:10:58.840 --> 0:11:03.679 C direction, in I'm interested in seeing what the new 0:11:03.760 --> 0:11:07.240 chair has in mind and evaluating. 0:11:06.520 --> 0:11:09.280 That it's gonna be a fun new voyage. He'll take 0:11:09.320 --> 0:11:11.679 over maybe next Friday. We'll have you back Monday to 0:11:11.720 --> 0:11:15.400 talk about how everything has changed, right, but hopefully we 0:11:15.440 --> 0:11:17.960 will have you back soon. Austin Gilsby. He is the 0:11:18.000 --> 0:11:20.480 president of the Chicago Federal Reserve.