Speaker 1: Let's head back out to Jackson Hole, where we find
Speaker 1: Michael McKee, International Economics and Policy correspondent. He's sitting down
Speaker 1: with Chicago Fed President Austin Goolsby.
Speaker 2: Hey Mike, Hey.
Speaker 3: Tim, Thanks for having us and thank you for joining us.
Speaker 2: Great to see you were not surprised.
Speaker 3: You've been calling for the Fed to cut rates soon
Speaker 3: for quite some time, so basically you got what you
Speaker 3: wanted today.
Speaker 2: Yeah, look, you know the rules.
Speaker 1: I'm not to comment on what anybody else from the
Speaker 1: FMC says. As you say, I think we set a
Speaker 1: rate pretty tight more than a year ago. Inflation's kept
Speaker 1: coming down, so in the real rate since we've been tightening,
Speaker 1: and when the conditions are not overheating, you got to
Speaker 1: be really careful with that kind of passive tightening. Seemed
Speaker 1: pretty definitive, the statements that Jared Powell made there in
Speaker 1: his remarks, and I think that this reflects the reality
Speaker 1: of the economy that we've got to keep our eye
Speaker 1: on the employment side of the mandate. Now, this is
Speaker 1: what the path down to two percent inflation looks like.
Speaker 1: You know, you got some bumps, but I think that
Speaker 1: side's looking a lot better.
Speaker 3: As you say, you've been worried about being too tight
Speaker 3: for a while now. The Chair did not discuss how
Speaker 3: big of a cut might be coming for the first one.
Speaker 3: What do you think the economy needs? Do you need
Speaker 3: to see fifty basis points?
Speaker 2: You know?
Speaker 1: I don't like ahead of time, as you know, picking
Speaker 1: out specific numbers. In my view, the SEPs over the
Speaker 1: last year have made pretty clear that almost everyone on
Speaker 1: the committee thinks that conditions will show inflation coming down,
Speaker 1: the unemployment rate going up gradually.
Speaker 2: And settling in, and that there will.
Speaker 1: Be multiple cuts over calendar twenty four in calendar twenty
Speaker 1: five and feels that feels like what the path is
Speaker 1: from conditions so far?
Speaker 3: To me, well, we start down the golden path, or
Speaker 3: is the chair would say, the golden road to unlimited devotion?
Speaker 3: How fast do you move? Do you think you need
Speaker 3: to be gradual? Are you open to bigger moves if
Speaker 3: the data suggests.
Speaker 1: Look, you've seen many times the size of the table.
Speaker 1: It's a big enough table in the FOMC room. You
Speaker 1: can fit everything on the table. I think we shall
Speaker 1: always put everything on the table. And what will warrant
Speaker 1: the speed at which we cut rates or how much
Speaker 1: we pause on the cutting will be determined by how
Speaker 1: the totality of the conditions show. I think there are
Speaker 1: definitely warning signs, though there are also signs of strength.
Speaker 1: So on the warning category, the unemployment rate drift up
Speaker 1: as definitely a warning sign. If you look at the
Speaker 1: delinquencies on credit cards, if you look at small business defaults.
Speaker 2: All of those are in the warning category.
Speaker 1: On the stronger category, GDP grows been pretty robust. Consumer
Speaker 1: spending still pretty strong, driven by I think the robust
Speaker 1: wage growth.
Speaker 2: So we just got to watch the whole thing. And
Speaker 2: on the job.
Speaker 1: Market side, if you start to see and increase in
Speaker 1: direct layoffs, that would be a clear warning sign from
Speaker 1: past business cycles that unemployment rates rising from layoffs is
Speaker 1: a sign of recession.
Speaker 3: If you cut interest rates by twenty five basis points
Speaker 3: a quarter percentage point in September, that's not going to
Speaker 3: do a lot right away. How far do you think
Speaker 3: you need to go before it will really affect the economy.
Speaker 1: Look, I think this is the right way to think
Speaker 1: about it, that about the long arc of both the
Speaker 1: conditions and the monetary policy. Monetary policy does not work instantaneously,
Speaker 1: and if anything, this strange recovery has shown us that
Speaker 1: even the normal rules of monetary policy transmission maybe don't
Speaker 1: apply exactly right now as they have in the past,
Speaker 1: whether from excess savings or from mortgage rate lock ins
Speaker 1: or supply chain things had depressed manufactured durable goods consumption
Speaker 1: during the pandemic, so there's some pent up demand. All
Speaker 1: of those are primary channels. Normally when we change the rates,
Speaker 1: that's the first place you look. But in each of
Speaker 1: those cases it's looked a little different.
Speaker 2: So I don't think we should.
Speaker 1: I don't think it makes sense to get into a
Speaker 1: big debate of is twenty five in this month or
Speaker 1: fifty at the next meeting. The little gradations like that
Speaker 1: aren't what matters the most. What matters the most is
Speaker 1: over the long art from now to one. If we
Speaker 1: come back one year from now, would we expect to
Speaker 1: see a lot of rate cuts if conditions keep evolving
Speaker 1: in this positive way?
Speaker 3: My view, yes, Well, if we come back one year
Speaker 3: from now, and I presume we will, and we'll have
Speaker 3: you sitting there, what do.
Speaker 2: You think the rate would be?
Speaker 3: Where do you think neutral.
Speaker 2: Is these days?
Speaker 1: It's far from where we are. I think you're see
Speaker 1: an unemployment continuing to rise. And it's worth noting, as
Speaker 1: I say, the SEPs that come out every three months
Speaker 1: have been saying that people thought unemployment would settle in
Speaker 1: four point one or something like that, and we're already
Speaker 1: pushing through. So the determination of what is neutral is
Speaker 1: going to have to go off of the rough and
Speaker 1: ready guide. Does it look like things are settling in
Speaker 1: or does it look like conditions continue to worsen. You know,
Speaker 1: I've been less of a fan of trying to use
Speaker 1: a model based estimate of our star in real time
Speaker 1: as a determinate monetary policy.
Speaker 2: I just think it's not that easy to do that.
Speaker 1: But that said, we're very tight so we know which
Speaker 1: way it should be going from this point if conditions
Speaker 1: keep improving.
Speaker 3: But fair to say you're not going back to zero.
Speaker 2: I don't know. Everything's always on the table. You don't know.
Speaker 1: It certainly does not see if the barring crises.
Speaker 2: If you look at the SEPs.
Speaker 1: The long run interest rates are above that. The members
Speaker 1: of the FMC forecast to be appropriate are well above zero,
Speaker 1: And it doesn't seem right now, if conditions progress how
Speaker 1: they are that it would that it would be that
Speaker 1: far down what.
Speaker 3: Are companies in your district telling you about how they
Speaker 3: see the economy evolving over the next six months to
Speaker 3: a year and how they see rate cuts affecting them
Speaker 3: or do they in the short run.
Speaker 2: Well, our district is part of the Midwest.
Speaker 1: It's more manufacturing intensive and autos especially than any other district.
Speaker 1: It can be sectors specific. There are some sectors that
Speaker 1: are feeling the pinch right now in a tough way,
Speaker 1: as spending shifts back away from goods back towards services.
Speaker 1: There are manufacturing sectors that are suffering. But for the
Speaker 1: most part, we've heard a lot of steady as she goes.
Speaker 1: It's not getting worse, but it's not getting better. So
Speaker 1: in a way, that's encouraging not expecting recession. That in
Speaker 1: the job market it's easier to find people. The labor
Speaker 1: shortage mostly solved, the supply chain crisis mostly solved, and
Speaker 1: from the business perspective, some complaint that they don't feel
Speaker 1: like they can pass cost increases on to customers anymore,
Speaker 1: that there's pushback from the consumers.
Speaker 2: From the central banks perspective, that's good.
Speaker 1: That means probably inflation's coming down, and overall recognition that
Speaker 1: we're tight.
Speaker 2: I mean for companies that are.
Speaker 1: Out trying to borrow from banks, smaller businesses, et cetera.
Speaker 1: Credit conditions are as tight as you'd expect.
Speaker 2: With the rates high like this.
Speaker 3: What about average Americans? What do you sense do you
Speaker 3: pick up from them about their willingness to continue to spend?
Speaker 1: Well, a lot of that, as I say, I think
Speaker 1: is tied to wage growth. And wage growth for the
Speaker 1: last year has been robustly higher than the rate of inflation,
Speaker 1: so real incomes rising.
Speaker 2: But for sure, you hear.
Speaker 1: When we go out and talk to people in the
Speaker 1: community or community leaders, hear a lot of fretting over
Speaker 1: the affordability, especially of different than like housing affordability huge issue,
Speaker 1: and the price level upset that the price level is
Speaker 1: a lot.
Speaker 2: Higher than it was in previous years.
Speaker 1: So I'd say there's some question mark on the strength
Speaker 1: of the consumer. That said, if you look at actual
Speaker 1: consumer spending in these latest reports have been still fairly robust.
Speaker 3: Well, thank you very much for joining us today, Austin
Speaker 3: Golesby from the Federal Reserve Bank of Chicago. And of
Speaker 3: course now we've made a date next year, we'll have
Speaker 3: you sitting here figure out what the interesting.
Speaker 2: The moose will come back, we can hope so