Speaker 1: Bloomberg Audio Studios, podcasts, radio news well.
Speaker 2: Federal Reserve Baker Boston President Susan Collins said earlier on
Speaker 2: Bloomberg TV that a December interest rate cut remains on
Speaker 2: the table, emphasized in the Central Bank's decision will be
Speaker 2: guided by incoming data. For more on the path of
Speaker 2: rates and how another FED president is thinking about the environment.
Speaker 2: Right now, we had on over to Bloomberg News International
Speaker 2: Economics and Policy correspondent Michael McKee, who's standing by with
Speaker 2: Chicago Fed President Austin gooles Hey, Mike.
Speaker 3: Good afternoon, Tim, and good afternoon to everybody watching around
Speaker 3: the world on Bloomberg Television and radio through the miracle
Speaker 3: of modern telecommunications. I'm in Boston, where I did talk
Speaker 3: with Susan Collins earlier today in Austin is in Chicago
Speaker 3: where he is making some of the media rounds. Austin,
Speaker 3: thanks for joining us today. You saw to get you
Speaker 3: out here to Chicago exactly. But you just heard them
Speaker 3: say that the markets are down today. It's a little
Speaker 3: bit of disappointment because there's a feeling that with reasonably
Speaker 3: strong inflation and kind of strong economy and mixed news
Speaker 3: on the labor markets that the FED might take a
Speaker 3: cent a pause, take a pause in December. Do you
Speaker 3: want to make everybody happy and tell them that it's
Speaker 3: not going to happen.
Speaker 1: Look, you know my thing is A. I'm only allowed
Speaker 1: to speak for myself, not for anybody else on the
Speaker 1: committee or for the committee as a whole. And B.
Speaker 1: I don't like tie in our hands. We're going to
Speaker 1: still get a lot of information and data before the
Speaker 1: next meeting when we have to decide that, and we're
Speaker 1: going to get to discuss amongst ourselves, and I'm going
Speaker 1: to hear the views of other folks on the committee.
Speaker 1: I know the market's business model is to react immediately
Speaker 1: and in the most extreme terms to rumors, and that's
Speaker 1: not the FED timetable. What we need to do as
Speaker 1: a central bank, I think is focus on the through line.
Speaker 1: And the through line has been substantial decrease in the
Speaker 1: inflation rate from its highs, the job market cooling to
Speaker 1: something like full employment, where if it stayed right where
Speaker 1: it was, that would be that would be a perfectly fine,
Speaker 1: steady state outcome. And to do that and hold it
Speaker 1: in that kind of position, I think we're going to
Speaker 1: be looking at rates coming down over the next year
Speaker 1: along the lines of what the dot plot said. So
Speaker 1: I still think we have a long way to go
Speaker 1: down with rates. How fast that happens. You saw a
Speaker 1: chair pale saying that there's nothing that says it has
Speaker 1: to be immediate. And I'm comfortable personally that as there's
Speaker 1: some dispute about what is the neutral rate at which
Speaker 1: we're going to settle down, if there's disagreement about that,
Speaker 1: that we don't just charge right to it, that we
Speaker 1: slow the pace as we get toward it. But again,
Speaker 1: this is playing out over a longer period.
Speaker 3: I think, Well, everybody came out of the last meeting,
Speaker 3: everybody on Wall Street came out of the last meeting
Speaker 3: figuring that the December meeting was a sure thing for
Speaker 3: another rate cut. Have you seen anything in the data
Speaker 3: we got this past week that seems to have upset
Speaker 3: people on Wall Street that would cause you to think
Speaker 3: there should be a pause or are you still fairly
Speaker 3: confident that it's a necessary and a possible move.
Speaker 1: Well, the second part of that, I always think you've
Speaker 1: seen the table. It's a huge table. Everything's always on
Speaker 1: the table. But there's no there are no guarantees, and
Speaker 1: there shouldn't be We should be watching the conditions. I'm
Speaker 1: not going to try to put my head It's how
Speaker 1: dangerous is it to try to put your head into
Speaker 1: what the market is thinking. I've just got to focus
Speaker 1: on what I'm thinking. We've seen what is Austin thinking
Speaker 1: the job market conflicting crosswinds, let's call it. We had
Speaker 1: a disappointing month. We had two stronger than expected months,
Speaker 1: then we had a hurricane and strike noise affected month
Speaker 1: that was well below what was expected. We just need
Speaker 1: to see through that and try to figure out where
Speaker 1: we are in the job market. A lot of the
Speaker 1: other measures, if you take the unemployment rate, if you
Speaker 1: take some of the ratios like vacancies to the number
Speaker 1: of unemployed workers, they're pointing to stabilization at something like
Speaker 1: full employment. That would be great. The inflation numbers have
Speaker 1: to keep improving. I believe that we have set out
Speaker 1: a path to two percent. If we started to see
Speaker 1: reversal of that, then we're going to be back into
Speaker 1: the phase where we got to figure out is this
Speaker 1: a bump in the road like it was in January
Speaker 1: of this year, or is this through line continuing and
Speaker 1: that what you just think that a lot changed in
Speaker 1: the last couple weeks on.
Speaker 3: That is that what you're saying now with inflation as
Speaker 3: a bump in the road, the CPI PPI and what
Speaker 3: the nerds have figured out for PC coming.
Speaker 1: Up, Well the nerd I love those nerds. You a
Speaker 1: bunch of those nerds work at Chicago FED. It's a
Speaker 1: little higher, you know, on a monthly basis than the target.
Speaker 1: If that was extended, that's too high. We're not the
Speaker 1: inflation target's two percent. We're going to get inflation at
Speaker 1: two percent. If it's coming in at three percent, it
Speaker 1: has to come down. Now that said, absolutely, don't make
Speaker 1: too much out of any one month's number, especially on inflation.
Speaker 1: There's a lot of volatility of that series, and we've
Speaker 1: had many months in a row that the through line
Speaker 1: on inflation, in my view is it's come way down
Speaker 1: and it's going to keep coming down. I have some
Speaker 1: confidence that if you break out the components, you're starting
Speaker 1: to finally see progress. On the housing side. We've had
Speaker 1: a bit of a bump slash blip where goods inflation
Speaker 1: has gone back up above zero, where pre COVID it
Speaker 1: was mild deflation. So I still think you can see
Speaker 1: some progress on that, and we'll keep an eye on
Speaker 1: the services.
Speaker 3: This morning, you re Quota is saying by this time
Speaker 3: next year, we'll see interest rates far below where they
Speaker 3: are today. What does far below mean? Is your view
Speaker 3: of neutral significantly lower than we are now.
Speaker 1: It's significantly lower than where we are now, definitely. I mean,
Speaker 1: I don't think it's a secret. If you take the
Speaker 1: dot plot SEPs it looked like a pretty wide consensus
Speaker 1: among the members of the committee where they're asked individually.
Speaker 1: We don't debate those points that almost everyone views that
Speaker 1: the long run settling rate of interest rates is somewhere
Speaker 1: well below where it is today. So that's why I say,
Speaker 1: as long as we're staying on this path that we've
Speaker 1: been on, I view that interest rates need to come
Speaker 1: down a fair amount over the next twelve to eighteen months.
Speaker 3: But given the growth rate Atlanta fed GDP now out
Speaker 3: today two point six percent, and what we've seen the
Speaker 3: rest of this year, it's been stronger than anticipated, inflation's
Speaker 3: a little higher than anticipated, unemployment a little lower than anticipated.
Speaker 3: Is it worth keeping your foot on the brake a
Speaker 3: little longer to try to ensure you get to that
Speaker 3: target you want.
Speaker 1: I mean, it's for sure keeping an eye on those conditions.
Speaker 1: If you thought the economy is overheating and that we're
Speaker 1: getting off the through line of improvement and going to
Speaker 1: an overheated posture, the FED has to we committed we're
Speaker 1: going to get inflation back to two percent now. I
Speaker 1: think all the question mark to remember on all of
Speaker 1: this is we've had very robust productivity growth now for
Speaker 1: a year plus, and if productivity growth is higher than
Speaker 1: trend as it has been, and that continues, then you
Speaker 1: got to be a little careful over indexing on the
Speaker 1: growth rate of GDP as an indicator of whether the
Speaker 1: economy is overheating, because if productivity is rising, you can
Speaker 1: have faster growth without generating more inflation.
Speaker 3: I know there's some topics that FED officials don't like
Speaker 3: to talk about, including the state of the Chicago Bears
Speaker 3: these days.
Speaker 1: But you have a new coming that's cold. You're not
Speaker 1: even here, You're over there in Boston saying this. I'm
Speaker 1: going to get you, Mike.
Speaker 3: We have a new administration coming in and obviously it's
Speaker 3: going to bring in some new fiscal programs. I realize
Speaker 3: you don't have details, you can't model them. You're not sure,
Speaker 3: But could you basically say that whatever kind of SEP
Speaker 3: we get in December, the Summary of Economic Projections, whatever,
Speaker 3: at a dot plot, we shouldn't put too much emphasis
Speaker 3: on it because it could easily change when the new
Speaker 3: administration takes over.
Speaker 1: Maybe I don't totally know how to answer that. I
Speaker 1: thought Chair Powell at the press conference had a lovely
Speaker 1: phrase that when it comes to policy, we don't speculate.
Speaker 1: It's not our job to try to make predictions about
Speaker 1: who's going to win elections or what are they going
Speaker 1: to do. Our job is to follow the dual mandate,
Speaker 1: maximize employment, stabilize prices. If policies get enacted that we
Speaker 1: think are going to affect our mandate, of course we
Speaker 1: react to those conditions just like every other conditions. But
Speaker 1: we're not in the elections business or the anticipate anticipation
Speaker 1: of policy business of that form.
Speaker 3: Well, you did serve in an administration as chairman of
Speaker 3: the Council of Economic Advisors, and now you work for
Speaker 3: the FED. From your what should be the relationship between
Speaker 3: an executive administration and the central Bank?
Speaker 1: Look, I said before I ever was at the FED
Speaker 1: that FED independence is important, and that's a close to
Speaker 1: unanimously held view among economists because the simple reason just
Speaker 1: look around the world and look at times in the
Speaker 1: United States when a sitting administration can bully the FED
Speaker 1: or tell the FED what to do or the Central
Speaker 1: Bank what to do on interest rates. The outcomes are worse.
Speaker 1: Inflation is higher, the economic growth is lower. And that's
Speaker 1: why everybody thinks that the fed's independence is important. And
Speaker 1: it's an interesting observation. I was the chair of the
Speaker 1: Council of Economic Advisors. There are many previous people that
Speaker 1: worked at the Council of Economic Advisors or in high
Speaker 1: level treasury roles who work in the FED because they
Speaker 1: have public sector experience. But the question of FED independence,
Speaker 1: and it's embodied in the Federal Reserve Act. They try
Speaker 1: to set it up to be as insulated from elections
Speaker 1: as possible. It's not on the presidential election timetable for
Speaker 1: the terms. There's a composition of the FOMC, some of
Speaker 1: which are political appointees, some of which are from reserve
Speaker 1: banks around the country that are not chosen through a
Speaker 1: political process. And that's how it should be. If you
Speaker 1: want to do the best monetary policy.
Speaker 3: I think, I guess I'm going to ask a question
Speaker 3: that I sort of asked before, but in a different way.
Speaker 3: Back a couple of years ago, Leyel brainer put forth
Speaker 3: the proposition that maybe you want to have a slow
Speaker 3: period of policy, taking breaks in between meetings where you
Speaker 3: might raise or lower interest rates because you have to
Speaker 3: assess where the economy is, because we don't know what's
Speaker 3: going to happen with fiscal policy, and because we're getting
Speaker 3: a little bit of extra strength in the economy. Do
Speaker 3: you think that that is probably a good idea, that
Speaker 3: maybe we don't price in regular rate cuts, that you
Speaker 3: do take some breaks in between.
Speaker 1: Well, first, I thought you were about to say. I
Speaker 1: thought you were going to quote me something you asked
Speaker 1: me two years ago, and I was going to say,
Speaker 1: I don't remember that, But so you asked Vice Chair Brainerd.
Speaker 1: The Fed's decision making is not based on the results
Speaker 1: of elections. Our decision is based on the dual mandate
Speaker 1: and the assessment of the economic conditions and the outlook.
Speaker 1: If the outlook is changing, then we can balance and
Speaker 1: think through what that means for the FED. But the
Speaker 1: part of the question that I object to. It's not
Speaker 1: speculating about fiscal policy. That's not the Fed's role. We're
Speaker 1: the Midwest. You tell us the way, and we tell
Speaker 1: you what jacket we're going to put on. But that
Speaker 1: goes into the economic conditions, and what we do is
Speaker 1: watch economic conditions. I'm perfectly comfortable personally with the idea
Speaker 1: that if you look at the dot plot there is
Speaker 1: disagreement about what will the ultimate settling rate be of
Speaker 1: our star if you want to call it that, or
Speaker 1: what would it mean to stop being restrictive and start
Speaker 1: being neutral? And if we're getting closer to the disagreement point,
Speaker 1: I can understand why you would want to slow down
Speaker 1: a little bit to try to gauge is this neutral
Speaker 1: or are we still restrictive because monetary policy has a
Speaker 1: lag in its impact, and in my view, that's the
Speaker 1: way we should be managing this question of how slow
Speaker 1: or how fast to do it.
Speaker 3: Well, let me ask you one last question, and that
Speaker 3: is you mentioned you're in the Midwest. You can tell
Speaker 3: us what kind of coat you're wearing, probably the same
Speaker 3: as us today it's colden Boston. But what are CEOs
Speaker 3: and consumers telling you out there? I know you're not
Speaker 3: just looking at past data. When you make your decisions,
Speaker 3: you try to incorporate current views of the economy. So
Speaker 3: what are the views of the people in your district?
Speaker 1: Well, out here in the heartland, you know, in the
Speaker 1: Reserve banks, we spend a lot of time going and
Speaker 1: talking to business leaders and community leaders and consumers and
Speaker 1: getting the more up to date measures than just what
Speaker 1: come out in official data. A lot of the discussion,
Speaker 1: and we have a special focus on autos and manufacturing
Speaker 1: here in the seventh district because we have the most
Speaker 1: auto production of all the districts by far. Most of
Speaker 1: the business community are reporting back steady as she goes
Speaker 1: kind of a report and that the job market it's
Speaker 1: not easy to find people, but it's not the kind
Speaker 1: of labor shortage labor scarcity mentality that they had coming
Speaker 1: out of peak pandemic. On the inflation side, a lot
Speaker 1: of discussion, really complaints on the part of the business
Speaker 1: people that they cannot raise prices as much as they
Speaker 1: did before, they can't pass on cost increases, fear that
Speaker 1: there might be some cost increases coming, complications in the
Speaker 1: supply chain, etc. And that now consumers would not stand
Speaker 1: for passing those costs on. So all of those don't
Speaker 1: tell a story to me that's that different from what
Speaker 1: the data have been showing, which is this steady progress
Speaker 1: on the inflation front, stabilization on employment, and steady as
Speaker 1: she goes. Let's try to bring the interest rate down
Speaker 1: into something like neutral and be a little less restrictive.
Speaker 3: You've been in Chicago for a long time, but now
Speaker 3: you're at the Chicago Fed, which encompasses the city of Detroit.
Speaker 3: If the Lions went out, that good enough.
Speaker 1: For you, that's good enough for me. We got a
Speaker 1: branch in Detroit. We got a bomb dog in Detroit
Speaker 1: whose side lights as the bomb dog at the Detroit
Speaker 1: Lions Stadium. So we we're all lions. That'd be okay,
Speaker 1: almost as good as the bears.
Speaker 3: Austin Gilsby, the president of the Chicago Fed and the
Speaker 3: owner of a bomb dog in Detroit, thanks for joining
Speaker 3: us today here on Bloomberg, and I'll send it back
Speaker 3: to you guys in New York.
Speaker 2: Thanks so much. Michael McKee, Bombdogs and the Dot plot.
Speaker 2: Michael McKee, Blooberg News International Economic New Policy correspondent out
Speaker 2: there in Boston, though speaking with Austin Goulsby on Chicago,
Speaker 2: the president of the Chicago Fed