Speaker 1: We'd like to welcome Austin Golsby to our broadcast have
Speaker 1: bounce power here on Bloomberg Television and on radio worldwide.
Speaker 2: Austin, you heard us talking here.
Speaker 1: Twenty two thousand jobs, four point three percent unemployment.
Speaker 2: How's that economy of yours holding up?
Speaker 3: Well?
Speaker 4: You know, you never make too much of any one month,
Speaker 4: but it's definitely below what we would consider the break even.
Speaker 3: For job growth.
Speaker 4: The only thing I want to highlight is we're getting
Speaker 4: some cross currents in the data, and so we want
Speaker 4: to be careful thinking about where we are in the
Speaker 4: business cycle. We know that in twenty twenty four, and
Speaker 4: going back into twenty twenty three as well, when immigration
Speaker 4: was high, we were getting jobs numbers of one hundred
Speaker 4: and eighty five thousand a month, which was faster than
Speaker 4: the break even, but it wasn't a very good indication
Speaker 4: of where we were in the business cycle. And that
Speaker 4: could be at work in these numbers too, that they
Speaker 4: could be artificially lower than the break even because immigration's
Speaker 4: going the other way and labor supply the other way.
Speaker 4: So for me, I like looking at a at a
Speaker 4: broader portfolio of numbers, and I think things that are
Speaker 4: rates and ratios prove to be a little more accurate
Speaker 4: as indicators of business cycle last year. Those include the
Speaker 4: unemployment rate, the layoff rate, the vacancy rate, the hiring rate.
Speaker 3: And you see a million of those.
Speaker 2: You've called them the four horsemen of the labor.
Speaker 3: Four horsemen of truth on the labor market.
Speaker 1: Yeah, the labor market does seem though to have deteriorated some.
Speaker 1: Does this report today basically lock in or rate cut
Speaker 1: for September seventeenth.
Speaker 3: You know the rules.
Speaker 4: I'm not allowed to speak for the rest of the FED,
Speaker 4: the FMC. IM only speaking for myself. I want to
Speaker 4: get more information. I'm still undecided as we're going into this,
Speaker 4: if it looks like the labor market is deteriorating on
Speaker 4: grounds more than just the monthly payroll numbers, because I
Speaker 4: want to emphasize again when you have population growth changing
Speaker 4: around behind the scenes, just the aggregate monthly payroll growth
Speaker 4: is not a great indicator of the business cycle. If
Speaker 4: we start to see deterioration across all the four horsemen
Speaker 4: of truth in the labor market, the unemployment rate, the
Speaker 4: hiring rate, if we were to start seeing layoffs, then
Speaker 4: I think we would be nervous on the employment side
Speaker 4: of the mandate, but we can't disregard we got to
Speaker 4: look at the inflation side too, and the more mild
Speaker 4: numbers we get on inflation, the better I'll feel about
Speaker 4: just focusing on the labor market. But in the last
Speaker 4: inflation reports, we also had this uptick in inflation coming
Speaker 4: from services, so I think we want to make sure
Speaker 4: that that that's more of a blip.
Speaker 3: And not a more ominous indicator.
Speaker 1: Well, let me ask this, because you'll be in the
Speaker 1: blackout when we get the CPI report next week, what
Speaker 1: would it take for you to hold off on a
Speaker 1: rate cut in terms of an inflation result.
Speaker 4: I don't It's not going to be a specific number
Speaker 4: of if you saw x number, then you would change.
Speaker 4: It would be we're trying to get the through line
Speaker 4: of where the economy is, and one side of that
Speaker 4: shows relative weakness in the job market, at least measured
Speaker 4: by monthly payroll more stability looking at more accurate measures.
Speaker 4: And then on the other side, if the inflation numbers
Speaker 4: come in and they give some indicationtion that the that
Speaker 4: the inflation from tariffs is not looking to be persistent,
Speaker 4: or that the uptick in inflation on services again does
Speaker 4: not look to be persistent, looks to be more like
Speaker 4: it was just a temporary blip in the data. Then
Speaker 4: that would that would provide comfort to me that we're
Speaker 4: still on the what I was calling the golden path,
Speaker 4: and that race can come down a fair amount.
Speaker 1: Well, the administration thinks that you've fallen off the path.
Speaker 1: The universal response from administration officials today, including the President,
Speaker 1: is that you're still too late, that you should have
Speaker 1: been cutting earlier.
Speaker 3: Factually, yes, that is what they said.
Speaker 4: My view is, we go to the f o MC
Speaker 4: meeting and we look at the data and the economic
Speaker 4: outlook as best we can can to figure out the
Speaker 4: through line. A lot of people outside the FMC have
Speaker 4: a lot of opinions, but the independence of the monetary
Speaker 4: authority from political interference is critically important if we don't
Speaker 4: want inflation to come.
Speaker 1: Back, well for the economy's sake, are you behind the curve?
Speaker 4: It depends what you make of what the through line
Speaker 4: is on the economy. So as I say, if you
Speaker 4: take the payroll employment numbers, they show weakness. If you
Speaker 4: take the open job vacancy rate, or you look at
Speaker 4: the layoff rate, they don't show weakness. They show pretty
Speaker 4: stable full employment kind of values sort of where they
Speaker 4: were sometimes even better than they were pre COVID in
Speaker 4: what was a pretty tight labor market. And on the
Speaker 4: inflation side, we've had some really benign readings which would
Speaker 4: not give you any indigestion on that side. But we
Speaker 4: now have at least one report where you see services
Speaker 4: inflation bumping up, and services inflation is not a thing
Speaker 4: that would likely be coming from tariffs, so would tend
Speaker 4: not to be a one time cost increase. So we
Speaker 4: got some currents that we have to balance out here,
Speaker 4: and that's fine. This is what always happens. There are
Speaker 4: conditions change. The central bank is supposed to be the
Speaker 4: steady hand, and there's political argument, and there are market
Speaker 4: arguments up down sideways.
Speaker 3: They have a lot of variability.
Speaker 4: And as I say, we're supposed to be taking the
Speaker 4: steady hand and figuring out the through line.
Speaker 1: The President's argument seems to be, at least the way
Speaker 1: he was talking last night, is yeah, these numbers may
Speaker 1: be bad, but kind of challenge. Channeling his inner Brooklyn
Speaker 1: Dodger fan, he said, wait till next year. Next year,
Speaker 1: when all these tech palaces are built, We're going to
Speaker 1: see hiring like crazy. You've got to put in a
Speaker 1: new forecast for unemployment and for inflation at the next meeting.
Speaker 1: Do you see a rebound ahead and stronger economic growth
Speaker 1: and employment growth in twenty twenty six, Yes.
Speaker 4: I mean I think the to me, until we get
Speaker 4: more convincing evidence otherwise, I still think we're most likely
Speaker 4: in a kind of a full employment space where we're generating.
Speaker 3: Jobs in the economy continues to grow.
Speaker 4: This slowed down in payroll employment, the aggregate jobs number,
Speaker 4: as I say, you got to be extremely careful taking
Speaker 4: that as an indicator of the business cycle when things
Speaker 4: like immigration or labor supply and labor force participation are
Speaker 4: moved around behind the scenes. So to the extent that
Speaker 4: anybody's saying they think it's a strong job market and
Speaker 4: the job market may get even stronger going into twenty six,
Speaker 4: that's entirely a possibility. And if it is, to me,
Speaker 4: that's still on the golden path, that we're around stable
Speaker 4: fuel employment.
Speaker 1: We can't, unfortunately, avoid politics in these situations these days.
Speaker 1: Just a few hours ago, Treasury Secretary Scott Bessen came
Speaker 1: out with quite a broadside against the Fed in the
Speaker 1: Wall Street Journal, laying out a lengthy bill of particulars
Speaker 1: against the central Bank. Your research is bad, your forecasts
Speaker 1: are bad. You've contributed greatly to income inequality. You've destroyed
Speaker 1: the housing market, blurred the lines between fiscal and monetary policy,
Speaker 1: and created a culture in Washington where policymakers rely on
Speaker 1: the FED to bail them out after they make poor
Speaker 1: fiscal choices. These criticisms fair or unfair.
Speaker 4: Look, that's for the American people, or the pundits or
Speaker 4: somebody to decide. Like I say, what we do at
Speaker 4: the Federal Open Market Committee is go down there as
Speaker 4: a collection and do what the law requires us to do.
Speaker 4: That is set monetary policy based on maximizing employment and
Speaker 4: stabilizing the prices. At a moment like this, where we're
Speaker 4: getting shocks that are pushing us in a stagflationary direction,
Speaker 4: driving down employment and driving up prices simultaneously, that's a
Speaker 4: difficult environment for the central.
Speaker 3: Bank to be in.
Speaker 4: I've been in the FED for coming on three years,
Speaker 4: so I don't know about the long historical litany of
Speaker 4: complaints that someone might have. Overall, we just go there
Speaker 4: and do our job. That's what the law requires us
Speaker 4: to do, and so I'm not going to get it.
Speaker 4: And a political argument about it, well.
Speaker 1: Let me ask ask it this way. One of the
Speaker 1: criticisms he makes is that the FED has.
Speaker 2: A gain of function problem.
Speaker 1: In other words, since the Great Financial Crisis, you've had
Speaker 1: a lot of tools to the toolbox, including quantitative easing,
Speaker 1: forward guidance, things like that, and the FED also straight
Speaker 1: into climate change. You've heard those arguments before and other
Speaker 1: things like that the fate.
Speaker 2: Idea for inflation.
Speaker 1: Are any of those valid and anybody at the FED
Speaker 1: working on whether or not they have worked as you
Speaker 1: hoped and should be kept in the toolbox.
Speaker 4: Well, yes, people are working and thinking about that all
Speaker 4: the time, both at the FED and among economic researchers
Speaker 4: and monetary researchers around the country. As I say, these
Speaker 4: are a bunch of things that are from the years
Speaker 4: before I was at the FED, I'm certainly not going
Speaker 4: to speak to them. I don't have any privileged information
Speaker 4: about how those were determined. I think on overall dual
Speaker 4: mandate grounds, you have to say that as you look
Speaker 4: at twenty twenty three and twenty twenty four, we've got
Speaker 4: the inflation, we're coming off a period where inflation was
Speaker 4: well higher than the two percent inflation target, but we
Speaker 4: succeeded in getting inflation down almost as much as it
Speaker 4: has ever fallen in a single year, and for the
Speaker 4: first time ever in the United States and probably of
Speaker 4: any rich country in the world, we had that massive
Speaker 4: up drop of inflation without having a recession, without the
Speaker 4: unemployment rate rising dramatically. And that's what we should be
Speaker 4: trying to do. That is absolutely our goal to carry
Speaker 4: out the Golden path and to continue to carry it
Speaker 4: out now. And that involves figuring out the through line
Speaker 4: of where we are in the economy, not re over
Speaker 4: reacting to one month's report or two weeks what happened
Speaker 4: in the market two weeks ago.
Speaker 3: The law is very clear.
Speaker 4: If FMC stabilizes prices, maximizes employment, doesn't say anything about
Speaker 4: make administrations happy, make the stock market happy. None of
Speaker 4: those are in the mandate. Congress has given us the mandate.
Speaker 1: You know, they might want to change that mandate down
Speaker 1: at sixteen hundred Pennsylvania Avenue. Ultimately, Treasury Secretary Beston says,
Speaker 1: what's at stake is the Fed's credibility and political legitimacy.
Speaker 1: Have you seen signs or has anybody suggested to you
Speaker 1: that either of those have diminished.
Speaker 3: No, I agree with those with those sentiments.
Speaker 4: The credibility of any central bank, and the FED especially
Speaker 4: is critically important, so that when you go through episodes
Speaker 4: like happened coming out of COVID, where inflation goes way up,
Speaker 4: but if you look at market expectations of what inflation
Speaker 4: would be in the future, people believed the FED when
Speaker 4: it said we're going to get inflation back down to
Speaker 4: two percent. That is a sacred covenant between a central
Speaker 4: bank and the American public that it's going.
Speaker 3: To do the job as the law requires it.
Speaker 4: So I and everyone I know involved with the FED
Speaker 4: system is open to criticisms, critiques and analyzes of models,
Speaker 4: how can they be improved? Of forecasts, of the FED tools.
Speaker 4: All of those things should be on the table. We
Speaker 4: should have an adult conversation about those how can we
Speaker 4: improve our decision making?
Speaker 3: That's something different.
Speaker 4: Then should there be political interference with the setting of
Speaker 4: monetary policy? Should the central bank not be independent? And
Speaker 4: I'm totally opposed to taking away the independence of the
Speaker 4: central bank, as are unanimously all economists that I know of,
Speaker 4: because just look at places where there is not central
Speaker 4: bank independence, inflation comes back growth, This slower unemployment is worse.
Speaker 4: So we really don't want to go there, and I
Speaker 4: don't think I don't think that's what they're calling for.
Speaker 1: Unfortunately, I have to ask you one more question, and
Speaker 1: Stephen Myron looks like he will be joining you at
Speaker 1: the sixteenth and seventeenth of September meeting. He had some
Speaker 1: not some nice things to say about you in his
Speaker 1: paper on FED reform last year.
Speaker 2: Was your appointment, sinister?
Speaker 1: Does he have a point about a revolving door between
Speaker 1: political administrations and people who are on the FED.
Speaker 4: I'm not going to get into policy, he said, my
Speaker 4: appointment was, sinister, I served in an administration and some
Speaker 4: twelve years later I joined the FED. I think it's
Speaker 4: a little strange to call that a revolving door. But
Speaker 4: I look forward to to meeting Steven Myron, and I'm
Speaker 4: proud he's coming from the Council of Economic Advisors, which
Speaker 4: was saying he had the same job I had had
Speaker 4: twelve years before I joined the FED. So, and there's
Speaker 4: a long history of CEA folks coming over to.
Speaker 3: The FED and doing a very effective job.
Speaker 4: I think anybody who comes and joins the FOMC.
Speaker 3: Is going to take the job very seriously.
Speaker 4: It's it's it's an important function, and we all just
Speaker 4: go down there and try to maximize employment, stabilized prices.
Speaker 3: That's our that that's that's what the law says.
Speaker 1: Well, Austin Gilsby, thank you very much for being diligent
Speaker 1: enough to come talk to us, and hopefully you'll talk
Speaker 1: to us last again the next meeting.