WEBVTT - Chicago Fed President Austan Goolsbee Talks Path of Inflation

0:00:00.160 --> 0:00:03.200
<v Speaker 1>Let's head back out to Jackson Hole, where we find

0:00:03.360 --> 0:00:06.880
<v Speaker 1>Michael McKee, International Economics and Policy correspondent. He's sitting down

0:00:07.240 --> 0:00:09.600
<v Speaker 1>with Chicago Fed President Austin Goolsby.

0:00:09.640 --> 0:00:12.880
<v Speaker 2>Hey Mike, Hey.

0:00:12.760 --> 0:00:15.520
<v Speaker 3>Tim, Thanks for having us and thank you for joining us.

0:00:15.880 --> 0:00:18.240
<v Speaker 2>Great to see you were not surprised.

0:00:18.280 --> 0:00:21.680
<v Speaker 3>You've been calling for the Fed to cut rates soon

0:00:22.160 --> 0:00:25.079
<v Speaker 3>for quite some time, so basically you got what you

0:00:25.079 --> 0:00:25.680
<v Speaker 3>wanted today.

0:00:26.040 --> 0:00:27.760
<v Speaker 2>Yeah, look, you know the rules.

0:00:27.800 --> 0:00:30.840
<v Speaker 1>I'm not to comment on what anybody else from the

0:00:30.920 --> 0:00:35.720
<v Speaker 1>FMC says. As you say, I think we set a

0:00:35.800 --> 0:00:41.000
<v Speaker 1>rate pretty tight more than a year ago. Inflation's kept

0:00:41.000 --> 0:00:46.080
<v Speaker 1>coming down, so in the real rate since we've been tightening,

0:00:46.600 --> 0:00:50.720
<v Speaker 1>and when the conditions are not overheating, you got to

0:00:50.760 --> 0:00:55.760
<v Speaker 1>be really careful with that kind of passive tightening. Seemed

0:00:55.880 --> 0:01:01.360
<v Speaker 1>pretty definitive, the statements that Jared Powell made there in

0:01:01.400 --> 0:01:06.119
<v Speaker 1>his remarks, and I think that this reflects the reality

0:01:06.360 --> 0:01:09.000
<v Speaker 1>of the economy that we've got to keep our eye

0:01:09.280 --> 0:01:11.720
<v Speaker 1>on the employment side of the mandate. Now, this is

0:01:11.800 --> 0:01:15.800
<v Speaker 1>what the path down to two percent inflation looks like.

0:01:16.120 --> 0:01:18.680
<v Speaker 1>You know, you got some bumps, but I think that

0:01:19.080 --> 0:01:20.240
<v Speaker 1>side's looking a lot better.

0:01:20.400 --> 0:01:22.360
<v Speaker 3>As you say, you've been worried about being too tight

0:01:22.440 --> 0:01:25.959
<v Speaker 3>for a while now. The Chair did not discuss how

0:01:26.000 --> 0:01:28.640
<v Speaker 3>big of a cut might be coming for the first one.

0:01:28.880 --> 0:01:31.560
<v Speaker 3>What do you think the economy needs? Do you need

0:01:31.600 --> 0:01:33.040
<v Speaker 3>to see fifty basis points?

0:01:33.280 --> 0:01:33.480
<v Speaker 2>You know?

0:01:33.600 --> 0:01:36.920
<v Speaker 1>I don't like ahead of time, as you know, picking

0:01:36.959 --> 0:01:42.520
<v Speaker 1>out specific numbers. In my view, the SEPs over the

0:01:42.640 --> 0:01:47.200
<v Speaker 1>last year have made pretty clear that almost everyone on

0:01:47.240 --> 0:01:51.960
<v Speaker 1>the committee thinks that conditions will show inflation coming down,

0:01:52.360 --> 0:01:55.680
<v Speaker 1>the unemployment rate going up gradually.

0:01:55.200 --> 0:01:57.480
<v Speaker 2>And settling in, and that there will.

0:01:57.360 --> 0:02:02.560
<v Speaker 1>Be multiple cuts over calendar twenty four in calendar twenty

0:02:02.680 --> 0:02:07.040
<v Speaker 1>five and feels that feels like what the path is

0:02:07.080 --> 0:02:08.360
<v Speaker 1>from conditions so far?

0:02:08.400 --> 0:02:11.000
<v Speaker 3>To me, well, we start down the golden path, or

0:02:11.080 --> 0:02:13.680
<v Speaker 3>is the chair would say, the golden road to unlimited devotion?

0:02:15.160 --> 0:02:18.639
<v Speaker 3>How fast do you move? Do you think you need

0:02:18.680 --> 0:02:22.680
<v Speaker 3>to be gradual? Are you open to bigger moves if

0:02:22.720 --> 0:02:24.600
<v Speaker 3>the data suggests.

0:02:24.240 --> 0:02:27.520
<v Speaker 1>Look, you've seen many times the size of the table.

0:02:28.000 --> 0:02:31.000
<v Speaker 1>It's a big enough table in the FOMC room. You

0:02:31.000 --> 0:02:33.720
<v Speaker 1>can fit everything on the table. I think we shall

0:02:33.800 --> 0:02:39.560
<v Speaker 1>always put everything on the table. And what will warrant

0:02:39.600 --> 0:02:43.480
<v Speaker 1>the speed at which we cut rates or how much

0:02:43.520 --> 0:02:48.080
<v Speaker 1>we pause on the cutting will be determined by how

0:02:48.120 --> 0:02:52.040
<v Speaker 1>the totality of the conditions show. I think there are

0:02:52.120 --> 0:02:56.360
<v Speaker 1>definitely warning signs, though there are also signs of strength.

0:02:56.560 --> 0:03:00.320
<v Speaker 1>So on the warning category, the unemployment rate drift up

0:03:00.360 --> 0:03:03.640
<v Speaker 1>as definitely a warning sign. If you look at the

0:03:03.880 --> 0:03:08.200
<v Speaker 1>delinquencies on credit cards, if you look at small business defaults.

0:03:07.760 --> 0:03:09.440
<v Speaker 2>All of those are in the warning category.

0:03:09.919 --> 0:03:14.359
<v Speaker 1>On the stronger category, GDP grows been pretty robust. Consumer

0:03:14.440 --> 0:03:19.240
<v Speaker 1>spending still pretty strong, driven by I think the robust

0:03:19.240 --> 0:03:19.960
<v Speaker 1>wage growth.

0:03:21.440 --> 0:03:25.000
<v Speaker 2>So we just got to watch the whole thing. And

0:03:25.360 --> 0:03:26.200
<v Speaker 2>on the job.

0:03:26.080 --> 0:03:30.640
<v Speaker 1>Market side, if you start to see and increase in

0:03:30.760 --> 0:03:35.840
<v Speaker 1>direct layoffs, that would be a clear warning sign from

0:03:35.960 --> 0:03:41.640
<v Speaker 1>past business cycles that unemployment rates rising from layoffs is

0:03:42.400 --> 0:03:43.400
<v Speaker 1>a sign of recession.

0:03:43.760 --> 0:03:46.560
<v Speaker 3>If you cut interest rates by twenty five basis points

0:03:46.560 --> 0:03:49.920
<v Speaker 3>a quarter percentage point in September, that's not going to

0:03:49.960 --> 0:03:52.520
<v Speaker 3>do a lot right away. How far do you think

0:03:52.520 --> 0:03:56.160
<v Speaker 3>you need to go before it will really affect the economy.

0:03:56.400 --> 0:03:58.840
<v Speaker 1>Look, I think this is the right way to think

0:03:58.880 --> 0:04:02.320
<v Speaker 1>about it, that about the long arc of both the

0:04:02.400 --> 0:04:07.880
<v Speaker 1>conditions and the monetary policy. Monetary policy does not work instantaneously,

0:04:08.200 --> 0:04:13.440
<v Speaker 1>and if anything, this strange recovery has shown us that

0:04:13.960 --> 0:04:20.920
<v Speaker 1>even the normal rules of monetary policy transmission maybe don't

0:04:20.920 --> 0:04:24.039
<v Speaker 1>apply exactly right now as they have in the past,

0:04:24.120 --> 0:04:28.240
<v Speaker 1>whether from excess savings or from mortgage rate lock ins

0:04:28.520 --> 0:04:34.680
<v Speaker 1>or supply chain things had depressed manufactured durable goods consumption

0:04:34.920 --> 0:04:38.200
<v Speaker 1>during the pandemic, so there's some pent up demand. All

0:04:38.240 --> 0:04:42.560
<v Speaker 1>of those are primary channels. Normally when we change the rates,

0:04:42.880 --> 0:04:45.240
<v Speaker 1>that's the first place you look. But in each of

0:04:45.240 --> 0:04:47.520
<v Speaker 1>those cases it's looked a little different.

0:04:47.960 --> 0:04:50.360
<v Speaker 2>So I don't think we should.

0:04:51.560 --> 0:04:54.720
<v Speaker 1>I don't think it makes sense to get into a

0:04:54.760 --> 0:04:57.839
<v Speaker 1>big debate of is twenty five in this month or

0:04:57.920 --> 0:05:01.760
<v Speaker 1>fifty at the next meeting. The little gradations like that

0:05:02.520 --> 0:05:06.000
<v Speaker 1>aren't what matters the most. What matters the most is

0:05:06.279 --> 0:05:08.680
<v Speaker 1>over the long art from now to one. If we

0:05:08.720 --> 0:05:12.080
<v Speaker 1>come back one year from now, would we expect to

0:05:12.120 --> 0:05:15.960
<v Speaker 1>see a lot of rate cuts if conditions keep evolving

0:05:16.040 --> 0:05:17.800
<v Speaker 1>in this positive way?

0:05:18.600 --> 0:05:21.599
<v Speaker 3>My view, yes, Well, if we come back one year

0:05:21.600 --> 0:05:23.840
<v Speaker 3>from now, and I presume we will, and we'll have

0:05:23.880 --> 0:05:25.640
<v Speaker 3>you sitting there, what do.

0:05:25.560 --> 0:05:26.480
<v Speaker 2>You think the rate would be?

0:05:27.040 --> 0:05:28.320
<v Speaker 3>Where do you think neutral.

0:05:28.040 --> 0:05:28.880
<v Speaker 2>Is these days?

0:05:29.880 --> 0:05:33.520
<v Speaker 1>It's far from where we are. I think you're see

0:05:33.520 --> 0:05:36.800
<v Speaker 1>an unemployment continuing to rise. And it's worth noting, as

0:05:36.839 --> 0:05:41.880
<v Speaker 1>I say, the SEPs that come out every three months

0:05:42.839 --> 0:05:46.880
<v Speaker 1>have been saying that people thought unemployment would settle in

0:05:47.120 --> 0:05:50.400
<v Speaker 1>four point one or something like that, and we're already

0:05:51.040 --> 0:05:56.839
<v Speaker 1>pushing through. So the determination of what is neutral is

0:05:56.920 --> 0:05:59.080
<v Speaker 1>going to have to go off of the rough and

0:05:59.160 --> 0:06:02.440
<v Speaker 1>ready guide. Does it look like things are settling in

0:06:03.040 --> 0:06:07.440
<v Speaker 1>or does it look like conditions continue to worsen. You know,

0:06:07.600 --> 0:06:10.640
<v Speaker 1>I've been less of a fan of trying to use

0:06:10.680 --> 0:06:15.599
<v Speaker 1>a model based estimate of our star in real time

0:06:15.680 --> 0:06:17.520
<v Speaker 1>as a determinate monetary policy.

0:06:17.800 --> 0:06:20.680
<v Speaker 2>I just think it's not that easy to do that.

0:06:22.040 --> 0:06:26.080
<v Speaker 1>But that said, we're very tight so we know which

0:06:26.120 --> 0:06:30.280
<v Speaker 1>way it should be going from this point if conditions

0:06:30.360 --> 0:06:31.080
<v Speaker 1>keep improving.

0:06:31.320 --> 0:06:33.240
<v Speaker 3>But fair to say you're not going back to zero.

0:06:34.720 --> 0:06:38.040
<v Speaker 2>I don't know. Everything's always on the table. You don't know.

0:06:38.480 --> 0:06:42.200
<v Speaker 1>It certainly does not see if the barring crises.

0:06:42.400 --> 0:06:44.400
<v Speaker 2>If you look at the SEPs.

0:06:44.240 --> 0:06:49.600
<v Speaker 1>The long run interest rates are above that. The members

0:06:49.600 --> 0:06:54.200
<v Speaker 1>of the FMC forecast to be appropriate are well above zero,

0:06:55.000 --> 0:07:01.080
<v Speaker 1>And it doesn't seem right now, if conditions progress how

0:07:01.120 --> 0:07:03.880
<v Speaker 1>they are that it would that it would be that

0:07:03.960 --> 0:07:04.920
<v Speaker 1>far down what.

0:07:04.920 --> 0:07:07.280
<v Speaker 3>Are companies in your district telling you about how they

0:07:07.360 --> 0:07:10.560
<v Speaker 3>see the economy evolving over the next six months to

0:07:10.680 --> 0:07:14.040
<v Speaker 3>a year and how they see rate cuts affecting them

0:07:14.160 --> 0:07:15.920
<v Speaker 3>or do they in the short run.

0:07:16.160 --> 0:07:19.440
<v Speaker 2>Well, our district is part of the Midwest.

0:07:19.920 --> 0:07:25.520
<v Speaker 1>It's more manufacturing intensive and autos especially than any other district.

0:07:27.560 --> 0:07:30.360
<v Speaker 1>It can be sectors specific. There are some sectors that

0:07:30.440 --> 0:07:34.280
<v Speaker 1>are feeling the pinch right now in a tough way,

0:07:34.720 --> 0:07:39.240
<v Speaker 1>as spending shifts back away from goods back towards services.

0:07:39.480 --> 0:07:43.400
<v Speaker 1>There are manufacturing sectors that are suffering. But for the

0:07:43.400 --> 0:07:48.200
<v Speaker 1>most part, we've heard a lot of steady as she goes.

0:07:48.360 --> 0:07:52.720
<v Speaker 1>It's not getting worse, but it's not getting better. So

0:07:53.200 --> 0:07:57.760
<v Speaker 1>in a way, that's encouraging not expecting recession. That in

0:07:57.800 --> 0:08:00.600
<v Speaker 1>the job market it's easier to find people. The labor

0:08:00.680 --> 0:08:07.840
<v Speaker 1>shortage mostly solved, the supply chain crisis mostly solved, and

0:08:08.320 --> 0:08:12.840
<v Speaker 1>from the business perspective, some complaint that they don't feel

0:08:12.880 --> 0:08:17.440
<v Speaker 1>like they can pass cost increases on to customers anymore,

0:08:17.560 --> 0:08:19.360
<v Speaker 1>that there's pushback from the consumers.

0:08:19.960 --> 0:08:22.360
<v Speaker 2>From the central banks perspective, that's good.

0:08:22.640 --> 0:08:28.960
<v Speaker 1>That means probably inflation's coming down, and overall recognition that

0:08:29.000 --> 0:08:29.520
<v Speaker 1>we're tight.

0:08:29.680 --> 0:08:32.120
<v Speaker 2>I mean for companies that are.

0:08:32.160 --> 0:08:37.080
<v Speaker 1>Out trying to borrow from banks, smaller businesses, et cetera.

0:08:37.720 --> 0:08:41.040
<v Speaker 1>Credit conditions are as tight as you'd expect.

0:08:40.720 --> 0:08:42.160
<v Speaker 2>With the rates high like this.

0:08:42.480 --> 0:08:46.040
<v Speaker 3>What about average Americans? What do you sense do you

0:08:46.080 --> 0:08:49.440
<v Speaker 3>pick up from them about their willingness to continue to spend?

0:08:51.000 --> 0:08:53.320
<v Speaker 1>Well, a lot of that, as I say, I think

0:08:53.440 --> 0:08:56.360
<v Speaker 1>is tied to wage growth. And wage growth for the

0:08:56.440 --> 0:09:00.600
<v Speaker 1>last year has been robustly higher than the rate of inflation,

0:09:00.760 --> 0:09:02.280
<v Speaker 1>so real incomes rising.

0:09:02.840 --> 0:09:05.079
<v Speaker 2>But for sure, you hear.

0:09:05.040 --> 0:09:07.360
<v Speaker 1>When we go out and talk to people in the

0:09:07.400 --> 0:09:12.000
<v Speaker 1>community or community leaders, hear a lot of fretting over

0:09:12.080 --> 0:09:17.520
<v Speaker 1>the affordability, especially of different than like housing affordability huge issue,

0:09:18.000 --> 0:09:21.839
<v Speaker 1>and the price level upset that the price level is

0:09:22.600 --> 0:09:23.000
<v Speaker 1>a lot.

0:09:22.920 --> 0:09:25.280
<v Speaker 2>Higher than it was in previous years.

0:09:25.360 --> 0:09:30.640
<v Speaker 1>So I'd say there's some question mark on the strength

0:09:30.640 --> 0:09:34.520
<v Speaker 1>of the consumer. That said, if you look at actual

0:09:34.520 --> 0:09:38.480
<v Speaker 1>consumer spending in these latest reports have been still fairly robust.

0:09:38.960 --> 0:09:41.160
<v Speaker 3>Well, thank you very much for joining us today, Austin

0:09:41.200 --> 0:09:44.240
<v Speaker 3>Golesby from the Federal Reserve Bank of Chicago. And of

0:09:44.240 --> 0:09:46.640
<v Speaker 3>course now we've made a date next year, we'll have

0:09:46.679 --> 0:09:49.160
<v Speaker 3>you sitting here figure out what the interesting.

0:09:49.400 --> 0:09:51.560
<v Speaker 2>The moose will come back, we can hope so