WEBVTT - Chicago Fed President Austan Goolsbee Talks Jobs Report, Stagflationary Concerns

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News.

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<v Speaker 2>Welcome back to Bloomberg Radio and television viewers and listeners

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<v Speaker 2>around the world. Our guests this morning. Now Austin gools

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<v Speaker 2>will be the president of the Chicago Federal Reserve. And

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<v Speaker 2>of course everybody wants to know what the Fed's going

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<v Speaker 2>to do. The Fed's worried about jobs, and today you

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<v Speaker 2>had a number to worry about.

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<v Speaker 1>He has a tough mess on the jobs report today.

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<v Speaker 1>You never want to over index on one month's report,

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<v Speaker 1>and I've been consistently saying, well, it's not index on

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<v Speaker 1>total payroll employment anyway, because a lot of stuff is

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<v Speaker 1>going on.

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<v Speaker 3>With immigration, with population growth.

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<v Speaker 1>That said, you saw the unemployment rate inching up, and

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<v Speaker 1>it's one month is not a trend, but it's not

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<v Speaker 1>a good month. If you got several months like that,

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<v Speaker 1>you would be that'd be a concerning spot for the

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<v Speaker 1>labor market.

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<v Speaker 2>Well, what's your feeling about what the Open Market Committee

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<v Speaker 2>going to do? I know you've been waiting to see data.

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<v Speaker 2>Chris Waller has been saying he's still in favor of cutting,

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<v Speaker 2>as is Steven Myron. Where do you come down now?

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<v Speaker 1>Well, as you know, and I appreciate you asked it

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<v Speaker 1>that way. I'm not allowed to speak for the committee

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<v Speaker 1>or for anybody else.

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<v Speaker 3>Just myself.

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<v Speaker 1>I've been saying for some months that we've had relative

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<v Speaker 1>steadiness in the job market. In my view, the strongest

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<v Speaker 1>thing in the economy is not AI data center investment,

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<v Speaker 1>has been consumer spending being solid in a kind of

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<v Speaker 1>a broad based way in the economy. But the inflation

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<v Speaker 1>hasn't been ideal. It's at least stalled out at kind

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<v Speaker 1>of three percent, and some of the latest measures the

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<v Speaker 1>inflation disturbingly high in non tear offf categories like services.

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<v Speaker 1>I think we're still basically in that same spot. I

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<v Speaker 1>remain old full slash, expecting that conditions will improve, that

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<v Speaker 1>will start to see some progress on inflation, head us

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<v Speaker 1>back to two percent, and by the end of this

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<v Speaker 1>year that we would be in a situation that we

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<v Speaker 1>could commence our march back down to something like the

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<v Speaker 1>settling point, which is below where we are today, but

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<v Speaker 1>each time we add an uncertainty. I think the job

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<v Speaker 1>market characterized by low hiring simultaneously with low layoffs is

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<v Speaker 1>a weird combination. And when I talk to business people

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<v Speaker 1>out in the Midwest, they characterize as because of the uncertainty.

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<v Speaker 1>So as we get more uncertainties, I kind of think

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<v Speaker 1>the time at which it makes sense to act keeps

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<v Speaker 1>getting pushed back. I always say the first rule of

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<v Speaker 1>the data dogs is to recognize there's a time for sniffing,

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<v Speaker 1>and there's a time for walking. And when there's uncertainty

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<v Speaker 1>and you're getting conflicting data points, that's the time for sniffin.

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<v Speaker 2>I'm sure everyone out there is very glad to hear

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<v Speaker 2>you bring back the data dogs. It's been a while

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<v Speaker 2>since we've heard that. Speaking of data dogs, one dog

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<v Speaker 2>that is marking very loudly right now is oil prices.

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<v Speaker 3>But the Fed tends to look through that.

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<v Speaker 1>Yes, I mean, as with any supply side shock, it

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<v Speaker 1>can lead in a stagflationary direction, which is to say,

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<v Speaker 1>the inflation side of the mandate getting worse at the

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<v Speaker 1>same time the employment.

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<v Speaker 3>Side of the mandate is getting worse.

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<v Speaker 1>And that's always the worst case scenario for the central bank.

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<v Speaker 1>Because there's not an obvious monetary policy answer to a

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<v Speaker 1>stagflationary shock oil prices going up, we need to think

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<v Speaker 1>about is this a transitory thing that's going to be temporary?

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<v Speaker 3>Is this going to be.

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<v Speaker 1>Long lived, how much, how big will it be, how

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<v Speaker 1>long will it last, and how is it affecting the

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<v Speaker 1>supply chain?

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<v Speaker 3>Before we can really say anything about it.

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<v Speaker 2>I would assume that you would assume that March is

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<v Speaker 2>not going to see March eighteenth is not going to

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<v Speaker 2>see any kind of rate move because there's still too

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<v Speaker 2>much uncertainty. Do you think it would have enough data

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<v Speaker 2>by April to even make a decision one way or another.

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<v Speaker 1>You know that I don't like, and you assume that

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<v Speaker 1>I assume I don't.

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<v Speaker 3>Know what you know.

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<v Speaker 1>I don't like tying our hands ahead of the meetings.

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<v Speaker 1>I want to hear what my colleagues have to say.

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<v Speaker 1>I want to get as much information as possible, especially

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<v Speaker 1>at moments like this where we're getting conflicting pieces of information.

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<v Speaker 3>But you've been there.

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<v Speaker 1>It's the biggest table that I've ever seen in my

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<v Speaker 1>life in that FOBC room. So there's plenty of room

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<v Speaker 1>for everything to be on the table at every meeting.

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<v Speaker 1>So I'm not going to rule anything out.

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<v Speaker 2>We are from the data that we already have, and

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<v Speaker 2>other FED officials have said this, expecting a bad PCE number.

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<v Speaker 2>Are you still thinking of that PCEE inflation as residual

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<v Speaker 2>tariff as opposed to an underlying fundamental problem with inflation.

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<v Speaker 3>Maybe a little of both.

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<v Speaker 1>I mean, that's why I've been uncertain and highlighting the

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<v Speaker 1>inflation numbers. There's been some encouraging science in inflation. Housing

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<v Speaker 1>inflation has come down a lot and is likely to

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<v Speaker 1>continue to come down. We had the run up of

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<v Speaker 1>goods inflation that I think a lot of it is

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<v Speaker 1>tied to tariffs, and we're still trying to sort out

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<v Speaker 1>is there more to come or is that basically all there.

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<v Speaker 3>Was with tariffs and then it'll go away. But there's

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<v Speaker 3>also been a.

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<v Speaker 1>Kind of a disturbing persistence of services inflation, which I

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<v Speaker 1>don't think you can attribute to tariffs because the tariff

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<v Speaker 1>content of the services industry is not very high.

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<v Speaker 3>So we'll have to see what the PCE number says.

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<v Speaker 1>The Open Market Committee has said we watch PCE inflation.

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<v Speaker 3>That's in our framework review.

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<v Speaker 1>That's the best measure that we have of inflation, I think,

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<v Speaker 1>And if it comes in hot and it's just goods,

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<v Speaker 1>I would be more comfortable saying that looks more like

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<v Speaker 1>a tariff driven thing. And that's the optimist case. Maybe

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<v Speaker 1>that it would prove transitory if it comes in hot,

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<v Speaker 1>but it's heavily on healthcare, a bunch of service sector industries.

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<v Speaker 1>That's a different kettle of fish, and that's a little

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<v Speaker 1>more that feels a little more persistent.

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<v Speaker 2>The sentiment question. The sentiment you can not just from CEOs,

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<v Speaker 2>but also from just talking to regular people in your district.

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<v Speaker 2>You've got a situation where people are seeing gas prices

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<v Speaker 2>go up and up and up, and now you have

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<v Speaker 2>a really bad employment report at a time when people

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<v Speaker 2>have already said they're worried about losing their jobs. Are

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<v Speaker 2>you concerned that this could tip us into the stagflationary environment.

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<v Speaker 3>I don't want to say recession.

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<v Speaker 2>Yet, but it could cause people to pull back.

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<v Speaker 3>It might cause people to pull back.

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<v Speaker 1>The last five to eight years, however, there's been a

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<v Speaker 1>breaking of the link between consumer sentiment and actual consumer

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<v Speaker 1>spending for some reasons we understand and some reasons we

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<v Speaker 1>don't understand. So if you saw a deterioration of consumer

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<v Speaker 1>sentiment as say, gas prices go up, which historically when

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<v Speaker 1>gas prices go up, consumer sentiment goes down, if that

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<v Speaker 1>did not translate into a slowing of concer who we're spending,

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<v Speaker 1>I would be much less nervous. As I've highlighted in

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<v Speaker 1>twenty twenty five, the strongest thing that we have going

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<v Speaker 1>for us was not AI data center investment.

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<v Speaker 3>Yeah, that was great, but the main thing.

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<v Speaker 1>Driving growth was a strong, stable consumer, broad based spending,

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<v Speaker 1>which drove growth in the country. And that still continues

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<v Speaker 1>until it doesn't. So if sentiment deteriorated, and there's a

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<v Speaker 1>lot of concern as I'm going around the Midwest and

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<v Speaker 1>the Chicago Fed District, a lot of expression of concern

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<v Speaker 1>about affordability, about costs on both the business side and

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<v Speaker 1>the consumer side. If people begin to be nervous about

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<v Speaker 1>their employment, Historically that tends to show up as they're

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<v Speaker 1>trying to build a little precautionary buffer, so the savings

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<v Speaker 1>rate would start to rise.

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<v Speaker 3>That'd be a thing to watch out.

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<v Speaker 2>Let's end on a little bit of a positive note here.

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<v Speaker 2>Productivity down from the third quarter, but still two point

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<v Speaker 2>eight percent for the fourth quarter. That's got to be

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<v Speaker 2>something that makes you feel a little bit.

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<v Speaker 1>Yeah, all of our inner economists are getting a little

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<v Speaker 1>bit of a warm glow. Productivity growth is what makes

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<v Speaker 1>us rich. Incomes can go up, wages can grow faster

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<v Speaker 1>without inflation if productivity growth is going to remain highlight

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<v Speaker 1>this so I don't think that the adoption of AI

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<v Speaker 1>has been big enough to explain that number completely. So

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<v Speaker 1>I think there actually might be even some more running

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<v Speaker 1>room to go with the productivity.

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<v Speaker 2>Austin Goolsby, thank you very much. We'll have you back

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<v Speaker 2>to have a name the Data Dogs contest right, President

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<v Speaker 2>of the Chicago Fan