Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Welcome back to Bloomberg Radio and television viewers and listeners
Speaker 2: around the world. Our guests this morning. Now Austin gools
Speaker 2: will be the president of the Chicago Federal Reserve. And
Speaker 2: of course everybody wants to know what the Fed's going
Speaker 2: to do. The Fed's worried about jobs, and today you
Speaker 2: had a number to worry about.
Speaker 1: He has a tough mess on the jobs report today.
Speaker 1: You never want to over index on one month's report,
Speaker 1: and I've been consistently saying, well, it's not index on
Speaker 1: total payroll employment anyway, because a lot of stuff is
Speaker 1: going on.
Speaker 3: With immigration, with population growth.
Speaker 1: That said, you saw the unemployment rate inching up, and
Speaker 1: it's one month is not a trend, but it's not
Speaker 1: a good month. If you got several months like that,
Speaker 1: you would be that'd be a concerning spot for the
Speaker 1: labor market.
Speaker 2: Well, what's your feeling about what the Open Market Committee
Speaker 2: going to do? I know you've been waiting to see data.
Speaker 2: Chris Waller has been saying he's still in favor of cutting,
Speaker 2: as is Steven Myron. Where do you come down now?
Speaker 1: Well, as you know, and I appreciate you asked it
Speaker 1: that way. I'm not allowed to speak for the committee
Speaker 1: or for anybody else.
Speaker 3: Just myself.
Speaker 1: I've been saying for some months that we've had relative
Speaker 1: steadiness in the job market. In my view, the strongest
Speaker 1: thing in the economy is not AI data center investment,
Speaker 1: has been consumer spending being solid in a kind of
Speaker 1: a broad based way in the economy. But the inflation
Speaker 1: hasn't been ideal. It's at least stalled out at kind
Speaker 1: of three percent, and some of the latest measures the
Speaker 1: inflation disturbingly high in non tear offf categories like services.
Speaker 1: I think we're still basically in that same spot. I
Speaker 1: remain old full slash, expecting that conditions will improve, that
Speaker 1: will start to see some progress on inflation, head us
Speaker 1: back to two percent, and by the end of this
Speaker 1: year that we would be in a situation that we
Speaker 1: could commence our march back down to something like the
Speaker 1: settling point, which is below where we are today, but
Speaker 1: each time we add an uncertainty. I think the job
Speaker 1: market characterized by low hiring simultaneously with low layoffs is
Speaker 1: a weird combination. And when I talk to business people
Speaker 1: out in the Midwest, they characterize as because of the uncertainty.
Speaker 1: So as we get more uncertainties, I kind of think
Speaker 1: the time at which it makes sense to act keeps
Speaker 1: getting pushed back. I always say the first rule of
Speaker 1: the data dogs is to recognize there's a time for sniffing,
Speaker 1: and there's a time for walking. And when there's uncertainty
Speaker 1: and you're getting conflicting data points, that's the time for sniffin.
Speaker 2: I'm sure everyone out there is very glad to hear
Speaker 2: you bring back the data dogs. It's been a while
Speaker 2: since we've heard that. Speaking of data dogs, one dog
Speaker 2: that is marking very loudly right now is oil prices.
Speaker 3: But the Fed tends to look through that.
Speaker 1: Yes, I mean, as with any supply side shock, it
Speaker 1: can lead in a stagflationary direction, which is to say,
Speaker 1: the inflation side of the mandate getting worse at the
Speaker 1: same time the employment.
Speaker 3: Side of the mandate is getting worse.
Speaker 1: And that's always the worst case scenario for the central bank.
Speaker 1: Because there's not an obvious monetary policy answer to a
Speaker 1: stagflationary shock oil prices going up, we need to think
Speaker 1: about is this a transitory thing that's going to be temporary?
Speaker 3: Is this going to be.
Speaker 1: Long lived, how much, how big will it be, how
Speaker 1: long will it last, and how is it affecting the
Speaker 1: supply chain?
Speaker 3: Before we can really say anything about it.
Speaker 2: I would assume that you would assume that March is
Speaker 2: not going to see March eighteenth is not going to
Speaker 2: see any kind of rate move because there's still too
Speaker 2: much uncertainty. Do you think it would have enough data
Speaker 2: by April to even make a decision one way or another.
Speaker 1: You know that I don't like, and you assume that
Speaker 1: I assume I don't.
Speaker 3: Know what you know.
Speaker 1: I don't like tying our hands ahead of the meetings.
Speaker 1: I want to hear what my colleagues have to say.
Speaker 1: I want to get as much information as possible, especially
Speaker 1: at moments like this where we're getting conflicting pieces of information.
Speaker 3: But you've been there.
Speaker 1: It's the biggest table that I've ever seen in my
Speaker 1: life in that FOBC room. So there's plenty of room
Speaker 1: for everything to be on the table at every meeting.
Speaker 1: So I'm not going to rule anything out.
Speaker 2: We are from the data that we already have, and
Speaker 2: other FED officials have said this, expecting a bad PCE number.
Speaker 2: Are you still thinking of that PCEE inflation as residual
Speaker 2: tariff as opposed to an underlying fundamental problem with inflation.
Speaker 3: Maybe a little of both.
Speaker 1: I mean, that's why I've been uncertain and highlighting the
Speaker 1: inflation numbers. There's been some encouraging science in inflation. Housing
Speaker 1: inflation has come down a lot and is likely to
Speaker 1: continue to come down. We had the run up of
Speaker 1: goods inflation that I think a lot of it is
Speaker 1: tied to tariffs, and we're still trying to sort out
Speaker 1: is there more to come or is that basically all there.
Speaker 3: Was with tariffs and then it'll go away. But there's
Speaker 3: also been a.
Speaker 1: Kind of a disturbing persistence of services inflation, which I
Speaker 1: don't think you can attribute to tariffs because the tariff
Speaker 1: content of the services industry is not very high.
Speaker 3: So we'll have to see what the PCE number says.
Speaker 1: The Open Market Committee has said we watch PCE inflation.
Speaker 3: That's in our framework review.
Speaker 1: That's the best measure that we have of inflation, I think,
Speaker 1: And if it comes in hot and it's just goods,
Speaker 1: I would be more comfortable saying that looks more like
Speaker 1: a tariff driven thing. And that's the optimist case. Maybe
Speaker 1: that it would prove transitory if it comes in hot,
Speaker 1: but it's heavily on healthcare, a bunch of service sector industries.
Speaker 1: That's a different kettle of fish, and that's a little
Speaker 1: more that feels a little more persistent.
Speaker 2: The sentiment question. The sentiment you can not just from CEOs,
Speaker 2: but also from just talking to regular people in your district.
Speaker 2: You've got a situation where people are seeing gas prices
Speaker 2: go up and up and up, and now you have
Speaker 2: a really bad employment report at a time when people
Speaker 2: have already said they're worried about losing their jobs. Are
Speaker 2: you concerned that this could tip us into the stagflationary environment.
Speaker 3: I don't want to say recession.
Speaker 2: Yet, but it could cause people to pull back.
Speaker 3: It might cause people to pull back.
Speaker 1: The last five to eight years, however, there's been a
Speaker 1: breaking of the link between consumer sentiment and actual consumer
Speaker 1: spending for some reasons we understand and some reasons we
Speaker 1: don't understand. So if you saw a deterioration of consumer
Speaker 1: sentiment as say, gas prices go up, which historically when
Speaker 1: gas prices go up, consumer sentiment goes down, if that
Speaker 1: did not translate into a slowing of concer who we're spending,
Speaker 1: I would be much less nervous. As I've highlighted in
Speaker 1: twenty twenty five, the strongest thing that we have going
Speaker 1: for us was not AI data center investment.
Speaker 3: Yeah, that was great, but the main thing.
Speaker 1: Driving growth was a strong, stable consumer, broad based spending,
Speaker 1: which drove growth in the country. And that still continues
Speaker 1: until it doesn't. So if sentiment deteriorated, and there's a
Speaker 1: lot of concern as I'm going around the Midwest and
Speaker 1: the Chicago Fed District, a lot of expression of concern
Speaker 1: about affordability, about costs on both the business side and
Speaker 1: the consumer side. If people begin to be nervous about
Speaker 1: their employment, Historically that tends to show up as they're
Speaker 1: trying to build a little precautionary buffer, so the savings
Speaker 1: rate would start to rise.
Speaker 3: That'd be a thing to watch out.
Speaker 2: Let's end on a little bit of a positive note here.
Speaker 2: Productivity down from the third quarter, but still two point
Speaker 2: eight percent for the fourth quarter. That's got to be
Speaker 2: something that makes you feel a little bit.
Speaker 1: Yeah, all of our inner economists are getting a little
Speaker 1: bit of a warm glow. Productivity growth is what makes
Speaker 1: us rich. Incomes can go up, wages can grow faster
Speaker 1: without inflation if productivity growth is going to remain highlight
Speaker 1: this so I don't think that the adoption of AI
Speaker 1: has been big enough to explain that number completely. So
Speaker 1: I think there actually might be even some more running
Speaker 1: room to go with the productivity.
Speaker 2: Austin Goolsby, thank you very much. We'll have you back
Speaker 2: to have a name the Data Dogs contest right, President
Speaker 2: of the Chicago Fan