WEBVTT - Fed President Austan Goolsbee Talks Fed Independence, Potential Rate Cut 0:00:00.280 --> 0:00:03.240 We'd like to welcome Austin Golsby to our broadcast have 0:00:03.320 --> 0:00:07.120 bounce power here on Bloomberg Television and on radio worldwide. 0:00:07.440 --> 0:00:09.840 Austin, you heard us talking here. 0:00:09.960 --> 0:00:13.200 Twenty two thousand jobs, four point three percent unemployment. 0:00:13.760 --> 0:00:15.360 How's that economy of yours holding up? 0:00:17.000 --> 0:00:17.400 Well? 0:00:17.680 --> 0:00:20.520 You know, you never make too much of any one month, 0:00:20.600 --> 0:00:24.120 but it's definitely below what we would consider the break even. 0:00:24.560 --> 0:00:25.480 For job growth. 0:00:26.400 --> 0:00:29.240 The only thing I want to highlight is we're getting 0:00:29.400 --> 0:00:31.960 some cross currents in the data, and so we want 0:00:32.000 --> 0:00:35.599 to be careful thinking about where we are in the 0:00:35.800 --> 0:00:41.400 business cycle. We know that in twenty twenty four, and 0:00:41.479 --> 0:00:45.720 going back into twenty twenty three as well, when immigration 0:00:46.080 --> 0:00:49.800 was high, we were getting jobs numbers of one hundred 0:00:49.800 --> 0:00:53.279 and eighty five thousand a month, which was faster than 0:00:53.280 --> 0:00:56.520 the break even, but it wasn't a very good indication 0:00:56.640 --> 0:00:59.080 of where we were in the business cycle. And that 0:00:59.160 --> 0:01:02.319 could be at work in these numbers too, that they 0:01:02.360 --> 0:01:07.680 could be artificially lower than the break even because immigration's 0:01:07.720 --> 0:01:10.480 going the other way and labor supply the other way. 0:01:11.040 --> 0:01:15.280 So for me, I like looking at a at a 0:01:15.520 --> 0:01:18.520 broader portfolio of numbers, and I think things that are 0:01:18.640 --> 0:01:22.360 rates and ratios prove to be a little more accurate 0:01:22.480 --> 0:01:27.000 as indicators of business cycle last year. Those include the 0:01:27.040 --> 0:01:31.399 unemployment rate, the layoff rate, the vacancy rate, the hiring rate. 0:01:31.600 --> 0:01:33.960 And you see a million of those. 0:01:35.120 --> 0:01:39.320 You've called them the four horsemen of the labor. 0:01:38.800 --> 0:01:40.800 Four horsemen of truth on the labor market. 0:01:40.920 --> 0:01:45.680 Yeah, the labor market does seem though to have deteriorated some. 0:01:45.800 --> 0:01:48.880 Does this report today basically lock in or rate cut 0:01:48.920 --> 0:01:54.880 for September seventeenth. 0:01:52.520 --> 0:01:53.400 You know the rules. 0:01:53.760 --> 0:01:56.240 I'm not allowed to speak for the rest of the FED, 0:01:56.320 --> 0:01:59.640 the FMC. IM only speaking for myself. I want to 0:01:59.680 --> 0:02:06.040 get more information. I'm still undecided as we're going into this, 0:02:06.400 --> 0:02:10.400 if it looks like the labor market is deteriorating on 0:02:10.560 --> 0:02:13.760 grounds more than just the monthly payroll numbers, because I 0:02:13.800 --> 0:02:19.079 want to emphasize again when you have population growth changing 0:02:19.120 --> 0:02:23.920 around behind the scenes, just the aggregate monthly payroll growth 0:02:24.240 --> 0:02:27.680 is not a great indicator of the business cycle. If 0:02:27.720 --> 0:02:33.320 we start to see deterioration across all the four horsemen 0:02:33.360 --> 0:02:36.800 of truth in the labor market, the unemployment rate, the 0:02:36.919 --> 0:02:40.600 hiring rate, if we were to start seeing layoffs, then 0:02:41.000 --> 0:02:43.399 I think we would be nervous on the employment side 0:02:43.400 --> 0:02:47.200 of the mandate, but we can't disregard we got to 0:02:47.200 --> 0:02:52.240 look at the inflation side too, and the more mild 0:02:52.400 --> 0:02:55.840 numbers we get on inflation, the better I'll feel about 0:02:55.880 --> 0:02:59.120 just focusing on the labor market. But in the last 0:02:59.360 --> 0:03:04.600 inflation reports, we also had this uptick in inflation coming 0:03:04.600 --> 0:03:07.200 from services, so I think we want to make sure 0:03:07.240 --> 0:03:10.200 that that that's more of a blip. 0:03:10.280 --> 0:03:13.400 And not a more ominous indicator. 0:03:14.440 --> 0:03:16.920 Well, let me ask this, because you'll be in the 0:03:16.919 --> 0:03:20.000 blackout when we get the CPI report next week, what 0:03:20.120 --> 0:03:22.679 would it take for you to hold off on a 0:03:22.800 --> 0:03:25.600 rate cut in terms of an inflation result. 0:03:27.600 --> 0:03:30.640 I don't It's not going to be a specific number 0:03:30.680 --> 0:03:33.720 of if you saw x number, then you would change. 0:03:33.840 --> 0:03:36.480 It would be we're trying to get the through line 0:03:36.600 --> 0:03:40.200 of where the economy is, and one side of that 0:03:41.160 --> 0:03:45.360 shows relative weakness in the job market, at least measured 0:03:45.400 --> 0:03:51.560 by monthly payroll more stability looking at more accurate measures. 0:03:52.920 --> 0:03:57.280 And then on the other side, if the inflation numbers 0:03:57.320 --> 0:04:02.680 come in and they give some indicationtion that the that 0:04:02.760 --> 0:04:06.840 the inflation from tariffs is not looking to be persistent, 0:04:07.600 --> 0:04:13.480 or that the uptick in inflation on services again does 0:04:13.560 --> 0:04:17.680 not look to be persistent, looks to be more like 0:04:17.720 --> 0:04:21.320 it was just a temporary blip in the data. Then 0:04:21.400 --> 0:04:25.360 that would that would provide comfort to me that we're 0:04:25.400 --> 0:04:27.960 still on the what I was calling the golden path, 0:04:28.200 --> 0:04:30.159 and that race can come down a fair amount. 0:04:31.600 --> 0:04:34.880 Well, the administration thinks that you've fallen off the path. 0:04:35.040 --> 0:04:40.560 The universal response from administration officials today, including the President, 0:04:40.760 --> 0:04:43.560 is that you're still too late, that you should have 0:04:43.640 --> 0:04:44.480 been cutting earlier. 0:04:48.160 --> 0:04:50.320 Factually, yes, that is what they said. 0:04:51.080 --> 0:04:54.560 My view is, we go to the f o MC 0:04:54.839 --> 0:04:58.680 meeting and we look at the data and the economic 0:04:58.760 --> 0:05:01.120 outlook as best we can can to figure out the 0:05:01.160 --> 0:05:05.000 through line. A lot of people outside the FMC have 0:05:05.080 --> 0:05:09.039 a lot of opinions, but the independence of the monetary 0:05:09.080 --> 0:05:13.520 authority from political interference is critically important if we don't 0:05:13.560 --> 0:05:14.799 want inflation to come. 0:05:14.640 --> 0:05:19.760 Back, well for the economy's sake, are you behind the curve? 0:05:22.960 --> 0:05:25.839 It depends what you make of what the through line 0:05:25.920 --> 0:05:28.440 is on the economy. So as I say, if you 0:05:28.520 --> 0:05:32.240 take the payroll employment numbers, they show weakness. If you 0:05:32.360 --> 0:05:36.120 take the open job vacancy rate, or you look at 0:05:36.160 --> 0:05:39.240 the layoff rate, they don't show weakness. They show pretty 0:05:39.279 --> 0:05:43.160 stable full employment kind of values sort of where they 0:05:43.200 --> 0:05:47.800 were sometimes even better than they were pre COVID in 0:05:47.839 --> 0:05:50.440 what was a pretty tight labor market. And on the 0:05:50.440 --> 0:05:55.239 inflation side, we've had some really benign readings which would 0:05:55.920 --> 0:06:00.960 not give you any indigestion on that side. But we 0:06:01.120 --> 0:06:05.240 now have at least one report where you see services 0:06:06.279 --> 0:06:09.600 inflation bumping up, and services inflation is not a thing 0:06:10.080 --> 0:06:15.800 that would likely be coming from tariffs, so would tend 0:06:15.839 --> 0:06:19.960 not to be a one time cost increase. So we 0:06:20.080 --> 0:06:22.560 got some currents that we have to balance out here, 0:06:22.960 --> 0:06:27.360 and that's fine. This is what always happens. There are 0:06:27.680 --> 0:06:32.680 conditions change. The central bank is supposed to be the 0:06:32.720 --> 0:06:37.480 steady hand, and there's political argument, and there are market 0:06:37.600 --> 0:06:40.200 arguments up down sideways. 0:06:40.560 --> 0:06:42.960 They have a lot of variability. 0:06:42.839 --> 0:06:46.200 And as I say, we're supposed to be taking the 0:06:46.240 --> 0:06:48.280 steady hand and figuring out the through line. 0:06:49.760 --> 0:06:51.920 The President's argument seems to be, at least the way 0:06:51.920 --> 0:06:54.599 he was talking last night, is yeah, these numbers may 0:06:54.760 --> 0:06:59.040 be bad, but kind of challenge. Channeling his inner Brooklyn 0:06:59.080 --> 0:07:03.000 Dodger fan, he said, wait till next year. Next year, 0:07:03.040 --> 0:07:05.719 when all these tech palaces are built, We're going to 0:07:05.720 --> 0:07:07.880 see hiring like crazy. You've got to put in a 0:07:07.920 --> 0:07:12.640 new forecast for unemployment and for inflation at the next meeting. 0:07:13.000 --> 0:07:16.600 Do you see a rebound ahead and stronger economic growth 0:07:16.680 --> 0:07:22.400 and employment growth in twenty twenty six, Yes. 0:07:22.560 --> 0:07:28.160 I mean I think the to me, until we get 0:07:28.760 --> 0:07:33.080 more convincing evidence otherwise, I still think we're most likely 0:07:33.240 --> 0:07:38.040 in a kind of a full employment space where we're generating. 0:07:37.600 --> 0:07:39.960 Jobs in the economy continues to grow. 0:07:40.160 --> 0:07:46.120 This slowed down in payroll employment, the aggregate jobs number, 0:07:47.040 --> 0:07:50.320 as I say, you got to be extremely careful taking 0:07:50.360 --> 0:07:54.000 that as an indicator of the business cycle when things 0:07:54.240 --> 0:07:59.680 like immigration or labor supply and labor force participation are 0:07:59.760 --> 0:08:03.960 moved around behind the scenes. So to the extent that 0:08:04.080 --> 0:08:06.880 anybody's saying they think it's a strong job market and 0:08:06.920 --> 0:08:10.160 the job market may get even stronger going into twenty six, 0:08:10.760 --> 0:08:17.400 that's entirely a possibility. And if it is, to me, 0:08:17.720 --> 0:08:22.120 that's still on the golden path, that we're around stable 0:08:22.160 --> 0:08:22.840 fuel employment. 0:08:24.880 --> 0:08:29.239 We can't, unfortunately, avoid politics in these situations these days. 0:08:29.280 --> 0:08:32.880 Just a few hours ago, Treasury Secretary Scott Bessen came 0:08:32.880 --> 0:08:35.320 out with quite a broadside against the Fed in the 0:08:35.320 --> 0:08:38.439 Wall Street Journal, laying out a lengthy bill of particulars 0:08:38.800 --> 0:08:42.559 against the central Bank. Your research is bad, your forecasts 0:08:42.600 --> 0:08:46.880 are bad. You've contributed greatly to income inequality. You've destroyed 0:08:46.880 --> 0:08:50.360 the housing market, blurred the lines between fiscal and monetary policy, 0:08:50.840 --> 0:08:54.840 and created a culture in Washington where policymakers rely on 0:08:54.880 --> 0:08:57.560 the FED to bail them out after they make poor 0:08:57.600 --> 0:09:01.520 fiscal choices. These criticisms fair or unfair. 0:09:03.240 --> 0:09:07.920 Look, that's for the American people, or the pundits or 0:09:08.200 --> 0:09:11.000 somebody to decide. Like I say, what we do at 0:09:11.040 --> 0:09:14.920 the Federal Open Market Committee is go down there as 0:09:14.960 --> 0:09:18.880 a collection and do what the law requires us to do. 0:09:19.040 --> 0:09:24.360 That is set monetary policy based on maximizing employment and 0:09:24.400 --> 0:09:28.400 stabilizing the prices. At a moment like this, where we're 0:09:28.400 --> 0:09:32.040 getting shocks that are pushing us in a stagflationary direction, 0:09:33.080 --> 0:09:38.000 driving down employment and driving up prices simultaneously, that's a 0:09:38.040 --> 0:09:40.040 difficult environment for the central. 0:09:39.720 --> 0:09:40.320 Bank to be in. 0:09:41.080 --> 0:09:44.560 I've been in the FED for coming on three years, 0:09:44.880 --> 0:09:49.880 so I don't know about the long historical litany of 0:09:50.480 --> 0:09:55.320 complaints that someone might have. Overall, we just go there 0:09:55.320 --> 0:09:57.959 and do our job. That's what the law requires us 0:09:57.960 --> 0:09:59.959 to do, and so I'm not going to get it. 0:10:00.080 --> 0:10:03.680 And a political argument about it, well. 0:10:03.679 --> 0:10:06.719 Let me ask ask it this way. One of the 0:10:06.840 --> 0:10:09.120 criticisms he makes is that the FED has. 0:10:09.000 --> 0:10:10.520 A gain of function problem. 0:10:10.520 --> 0:10:13.160 In other words, since the Great Financial Crisis, you've had 0:10:13.160 --> 0:10:16.640 a lot of tools to the toolbox, including quantitative easing, 0:10:16.720 --> 0:10:20.040 forward guidance, things like that, and the FED also straight 0:10:20.200 --> 0:10:23.680 into climate change. You've heard those arguments before and other 0:10:23.760 --> 0:10:25.679 things like that the fate. 0:10:28.120 --> 0:10:30.200 Idea for inflation. 0:10:31.440 --> 0:10:34.800 Are any of those valid and anybody at the FED 0:10:34.880 --> 0:10:38.800 working on whether or not they have worked as you 0:10:38.960 --> 0:10:41.000 hoped and should be kept in the toolbox. 0:10:42.559 --> 0:10:46.280 Well, yes, people are working and thinking about that all 0:10:46.280 --> 0:10:50.040 the time, both at the FED and among economic researchers 0:10:50.040 --> 0:10:53.720 and monetary researchers around the country. As I say, these 0:10:53.720 --> 0:10:55.840 are a bunch of things that are from the years 0:10:55.880 --> 0:10:58.200 before I was at the FED, I'm certainly not going 0:10:58.280 --> 0:11:01.120 to speak to them. I don't have any privileged information 0:11:01.240 --> 0:11:06.559 about how those were determined. I think on overall dual 0:11:06.600 --> 0:11:10.120 mandate grounds, you have to say that as you look 0:11:10.160 --> 0:11:14.400 at twenty twenty three and twenty twenty four, we've got 0:11:14.440 --> 0:11:17.560 the inflation, we're coming off a period where inflation was 0:11:17.640 --> 0:11:21.360 well higher than the two percent inflation target, but we 0:11:21.640 --> 0:11:25.800 succeeded in getting inflation down almost as much as it 0:11:25.880 --> 0:11:29.080 has ever fallen in a single year, and for the 0:11:29.120 --> 0:11:33.800 first time ever in the United States and probably of 0:11:33.880 --> 0:11:37.439 any rich country in the world, we had that massive 0:11:37.480 --> 0:11:41.800 up drop of inflation without having a recession, without the 0:11:41.920 --> 0:11:46.640 unemployment rate rising dramatically. And that's what we should be 0:11:46.760 --> 0:11:50.400 trying to do. That is absolutely our goal to carry 0:11:50.400 --> 0:11:53.080 out the Golden path and to continue to carry it 0:11:53.080 --> 0:11:57.040 out now. And that involves figuring out the through line 0:11:57.360 --> 0:11:59.960 of where we are in the economy, not re over 0:12:00.240 --> 0:12:05.240 reacting to one month's report or two weeks what happened 0:12:05.240 --> 0:12:06.560 in the market two weeks ago. 0:12:06.960 --> 0:12:08.480 The law is very clear. 0:12:08.880 --> 0:12:15.480 If FMC stabilizes prices, maximizes employment, doesn't say anything about 0:12:15.960 --> 0:12:20.280 make administrations happy, make the stock market happy. None of 0:12:20.280 --> 0:12:23.400 those are in the mandate. Congress has given us the mandate. 0:12:24.600 --> 0:12:26.880 You know, they might want to change that mandate down 0:12:26.960 --> 0:12:32.280 at sixteen hundred Pennsylvania Avenue. Ultimately, Treasury Secretary Beston says, 0:12:32.280 --> 0:12:35.760 what's at stake is the Fed's credibility and political legitimacy. 0:12:36.160 --> 0:12:39.319 Have you seen signs or has anybody suggested to you 0:12:39.520 --> 0:12:41.199 that either of those have diminished. 0:12:43.679 --> 0:12:47.760 No, I agree with those with those sentiments. 0:12:47.800 --> 0:12:51.839 The credibility of any central bank, and the FED especially 0:12:52.160 --> 0:12:55.959 is critically important, so that when you go through episodes 0:12:56.200 --> 0:13:00.680 like happened coming out of COVID, where inflation goes way up, 0:13:01.040 --> 0:13:05.120 but if you look at market expectations of what inflation 0:13:05.200 --> 0:13:09.120 would be in the future, people believed the FED when 0:13:09.160 --> 0:13:11.160 it said we're going to get inflation back down to 0:13:11.160 --> 0:13:15.240 two percent. That is a sacred covenant between a central 0:13:15.280 --> 0:13:19.719 bank and the American public that it's going. 0:13:19.520 --> 0:13:23.480 To do the job as the law requires it. 0:13:24.800 --> 0:13:30.440 So I and everyone I know involved with the FED 0:13:30.559 --> 0:13:36.920 system is open to criticisms, critiques and analyzes of models, 0:13:36.920 --> 0:13:40.800 how can they be improved? Of forecasts, of the FED tools. 0:13:40.920 --> 0:13:42.599 All of those things should be on the table. We 0:13:42.640 --> 0:13:46.040 should have an adult conversation about those how can we 0:13:46.080 --> 0:13:47.480 improve our decision making? 0:13:48.160 --> 0:13:49.280 That's something different. 0:13:49.320 --> 0:13:53.280 Then should there be political interference with the setting of 0:13:53.320 --> 0:13:58.240 monetary policy? Should the central bank not be independent? And 0:13:58.280 --> 0:14:02.240 I'm totally opposed to taking away the independence of the 0:14:02.280 --> 0:14:07.200 central bank, as are unanimously all economists that I know of, 0:14:07.679 --> 0:14:10.960 because just look at places where there is not central 0:14:10.960 --> 0:14:16.280 bank independence, inflation comes back growth, This slower unemployment is worse. 0:14:16.480 --> 0:14:20.360 So we really don't want to go there, and I 0:14:20.400 --> 0:14:23.160 don't think I don't think that's what they're calling for. 0:14:24.520 --> 0:14:26.280 Unfortunately, I have to ask you one more question, and 0:14:26.400 --> 0:14:29.280 Stephen Myron looks like he will be joining you at 0:14:29.320 --> 0:14:33.800 the sixteenth and seventeenth of September meeting. He had some 0:14:33.880 --> 0:14:36.160 not some nice things to say about you in his 0:14:36.320 --> 0:14:38.360 paper on FED reform last year. 0:14:39.320 --> 0:14:40.600 Was your appointment, sinister? 0:14:41.000 --> 0:14:44.680 Does he have a point about a revolving door between 0:14:45.160 --> 0:14:47.840 political administrations and people who are on the FED. 0:14:49.680 --> 0:14:51.640 I'm not going to get into policy, he said, my 0:14:51.720 --> 0:14:57.200 appointment was, sinister, I served in an administration and some 0:14:57.360 --> 0:15:01.360 twelve years later I joined the FED. I think it's 0:15:01.360 --> 0:15:04.440 a little strange to call that a revolving door. But 0:15:04.560 --> 0:15:10.800 I look forward to to meeting Steven Myron, and I'm 0:15:11.040 --> 0:15:14.000 proud he's coming from the Council of Economic Advisors, which 0:15:14.160 --> 0:15:17.040 was saying he had the same job I had had 0:15:17.120 --> 0:15:20.960 twelve years before I joined the FED. So, and there's 0:15:21.000 --> 0:15:24.520 a long history of CEA folks coming over to. 0:15:24.480 --> 0:15:26.280 The FED and doing a very effective job. 0:15:26.320 --> 0:15:30.280 I think anybody who comes and joins the FOMC. 0:15:30.400 --> 0:15:32.320 Is going to take the job very seriously. 0:15:32.600 --> 0:15:37.120 It's it's it's an important function, and we all just 0:15:37.200 --> 0:15:40.920 go down there and try to maximize employment, stabilized prices. 0:15:40.960 --> 0:15:43.520 That's our that that's that's what the law says. 0:15:45.040 --> 0:15:48.040 Well, Austin Gilsby, thank you very much for being diligent 0:15:48.120 --> 0:15:49.800 enough to come talk to us, and hopefully you'll talk 0:15:49.840 --> 0:15:51.920 to us last again the next meeting.