Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Well, thank you very much. We'd like to welcome all
Speaker 2: our viewers and listeners around the world to Bloomberg Radio
Speaker 2: and Television, and we'd like to welcome Austin Goolsby. Yeah,
Speaker 2: thank you for having Bloomberg Radio and Television. I want
Speaker 2: to start with the next meeting and the meetings beyond,
Speaker 2: because that's the general focus of the folks on trading desks.
Speaker 2: Coming out of the last two years, the focus seemed
Speaker 2: to be on the unemployment rate, on the labor market,
Speaker 2: and cutting rates to get ahead of a problem with
Speaker 2: the labor market. But listening to you this morning, it
Speaker 2: sounds like you're more concerned about inflation, that inflation may
Speaker 2: have become the primary risk.
Speaker 1: Yeah, I would say in my head in twenty three
Speaker 1: and twenty four since I've been on the FED, inflation's
Speaker 1: been it has never gone away as a central focus,
Speaker 1: and the labor market is deteriorating.
Speaker 3: It comes back in a major way.
Speaker 1: But I'm a little more concerned about inflation right now
Speaker 1: because I think the job market is pretty steady, I
Speaker 1: think growth is pretty steady. I think there's some promising
Speaker 1: stuff in the inflation reports, but there's also some warning signs.
Speaker 1: So as I say I'm not hawkish about rates, I'm
Speaker 1: pretty optimistic that we can get rates down further multiple
Speaker 1: cuts in twenty twenty six, as long as we see
Speaker 1: the progress on inflation that forecasters have been forecasting that
Speaker 1: it's supposed to start coming down, and I just want
Speaker 1: us to see some progress on that front and.
Speaker 3: Not get ahead of ourselves.
Speaker 2: Well, you talk about that a little bit, and it's
Speaker 2: a question I asked J Powell once is it seems
Speaker 2: like every time you put out a summary of economic
Speaker 2: projections that outlooked by the various members of the Open
Speaker 2: Market Committee, the two percent target gets hit two years
Speaker 2: from now. The next one it's two years from now exactly.
Speaker 1: So what goes wrong, That's a lot of things can
Speaker 1: go wrong.
Speaker 3: In this case.
Speaker 1: What I want to make sure is not going wrong
Speaker 1: is that we need inflation not to be persistent when
Speaker 1: the part of inflation that has come from tariffs is
Speaker 1: supposed to go away, is supposed to be transitory, and
Speaker 1: when you see things like the forecasts say inflation's going
Speaker 1: to peak out and then start falling by the end
Speaker 1: of twenty twenty five, and then that moves the goalpost. Well,
Speaker 1: maybe it'll be the first quarter of twenty six, and
Speaker 1: now they're saying, well, maybe it will be the second
Speaker 1: quarter of twenty six.
Speaker 3: That's not a great sign. We need to see.
Speaker 1: What we should see, especially on the good side. If
Speaker 1: the tariff inflation is transitory, it's supposed to start going away.
Speaker 1: And as soon as we start getting some evidence that
Speaker 1: we're back on the path to two percent, as I say,
Speaker 1: I think rates can still keep going down. And if
Speaker 1: you look at the at the SEP dot plot, a
Speaker 1: large group of the committee thinks that where rates will
Speaker 1: eventually settle is still well below where we are today.
Speaker 3: It's just we must get inflation down.
Speaker 1: From this three percent level that we've been stalled out
Speaker 1: at for now a year more.
Speaker 2: Well, now you've got this whole new tariff uncertainty from
Speaker 2: the Supreme Court. President's going to impose when you started today,
Speaker 2: a ten percent tariff universally brings down the tariff rates some,
Speaker 2: but they say they're going to use other means to
Speaker 2: get the tariff rates back up to about where they were.
Speaker 2: So now you'll have this dip perhaps in inflation, and
Speaker 2: then it could go back out again. So you said
Speaker 2: you want to see inflation going down. Does that get
Speaker 2: pushed out? Does it become later in this year when
Speaker 2: you can even think about things.
Speaker 1: I think when I'm out in the seventh District in
Speaker 1: the Midwest talking to folks, they talk a lot about uncertainty,
Speaker 1: policy uncertainties and geopolitical uncertainties. The thing to remember about
Speaker 1: the terriffs, even if the tariffs stay exactly as they were,
Speaker 1: just in a different form, the inflation impact is supposed
Speaker 1: to go away. So if the rates are lower than
Speaker 1: what they were before, that should be that should make
Speaker 1: it even more true that we should see the inflation
Speaker 1: going down. I think that the policy uncertainty we're seeing.
Speaker 3: More on the labor side.
Speaker 1: I think the low hiring, low firing environment is what
Speaker 1: you would expect when there's a lot of uncertainty. That's
Speaker 1: not really what the beginning of a recession looks like.
Speaker 3: Low hiring with high layoffs, that's what the beginning of
Speaker 3: a recession looks like.
Speaker 1: For both of those to be low is a bit
Speaker 1: of a weird duck, and I think is explained by
Speaker 1: a lot of we want to wait and see what's
Speaker 1: going to happen, and so if you have question marks
Speaker 1: coming from the Supreme Court, coming from other policy responses,
Speaker 1: I think you're likely to see continuation of that low hiring,
Speaker 1: low firing environment.
Speaker 2: Well, what are CEOs telling you they want to see
Speaker 2: before they would be willing to hire again.
Speaker 1: What they tend to say is, we want to know
Speaker 1: what the rules of the road are going to be,
Speaker 1: And right now we don't know what the rules of
Speaker 1: the road are going to be, and there could be
Speaker 1: very significant changes. And look, I'm sympathetic with that the
Speaker 1: rules are moving around. If you're in a business like
Speaker 1: the auto industry. The Chicago Fed District has by far
Speaker 1: the most auto production in the United States. It's a
Speaker 1: global supply chain for the auto industries. They're very amped
Speaker 1: up about what will be the treatment of parts, components,
Speaker 1: supplies that they used to make the cars. So far,
Speaker 1: they were pleasantly surprised that anything USMCA compliant was kind
Speaker 1: of exempted. Now, if the rumors are to be true
Speaker 1: that whatever they might renegotiate the USMCA or would Canada
Speaker 1: be in the USMCA, of course, that's what they're going
Speaker 1: to express. Uncertainty about things like that, and it's going
Speaker 1: to affect their decisions in short run.
Speaker 3: Over the long run, as I say.
Speaker 1: I still think the American consumer has been pretty solid.
Speaker 1: We've got a steady job market. If we'd make progress
Speaker 1: on inflation, I think rates are trending now.
Speaker 2: Well, we've seen productivity rise a little bit in the
Speaker 2: last couple of months. When you look at what the
Speaker 2: companies are telling you, are they saying, maybe we don't
Speaker 2: need to hire as many people because we're getting this
Speaker 2: job done, We're keeping up with orders.
Speaker 1: Some I mean, the economy is extremely diverse, and the
Speaker 1: answer to the question of what are the labor market
Speaker 1: prospects and do they need to hire depends very much
Speaker 1: on the industry. If you talk to software companies, a
Speaker 1: lot of them are saying, hey, the AI technologies, there's
Speaker 1: some uncertainty, but the only uncertainty is should we not
Speaker 1: higher or should we actually let people go. But if
Speaker 1: you look in the healthcare sector, it's a booming sector.
Speaker 1: Employment continues to expand in that sector, and you don't
Speaker 1: hear some of those So the answer that depends a
Speaker 1: lot on who you're talking to.
Speaker 2: Well, productivity is going to be a big issue for
Speaker 2: the FED coming up with a new chairman coming in
Speaker 2: Kevin Warsh, who's pretty much weed to the idea that
Speaker 2: AI is going to create a lot of additional productivity
Speaker 2: which will bring inflation down. Now, having talked to you,
Speaker 2: I know that you're not as sure about that.
Speaker 3: Yeah, look, I hope that that is what happens.
Speaker 1: Let's remember, productivity growth is the thing that makes us rich.
Speaker 1: So if we get high productivity growth, incomes are going
Speaker 1: to go up. There are a balance of things that
Speaker 1: happen when productivity goes up, though that we should remember.
Speaker 1: It can be deflationary. At the same time, it can
Speaker 1: still and you have seen it. It can stimulate a
Speaker 1: lot of investment, and in the short run, people counting
Speaker 1: on future productivity growth can overheat the economy just in
Speaker 1: the near term. And as you go around the country
Speaker 1: you hear a lot of discussion about data center investment demand,
Speaker 1: using up all the HVAC people, buying up all the
Speaker 1: electrical equipment, using up computer chips, and in a way
Speaker 1: making prices higher for the rest of the economy. We
Speaker 1: just got to think about some of those issues. What
Speaker 1: are the implications of high productivity growth? But overall, if
Speaker 1: that is Kevin Walsh's position, I've known them a long time.
Speaker 3: I respect him a great deal. I mostly agree with him.
Speaker 2: Now in March, you have to come up with a
Speaker 2: new economic projections, a set of forecasts for where you
Speaker 2: think the economy will go. You're probably going to be
Speaker 2: waiting a while till you have to actually put those
Speaker 2: on paper. But let me ask this, how much confidence
Speaker 2: are you going to have given everything that's going on
Speaker 2: right now in the numbers you put down.
Speaker 1: Do you want to view that as much confidence as
Speaker 1: we ever have or it's not very much confidence?
Speaker 3: Both of those can be true.
Speaker 1: There's a lot of uncertainty, and we have to make
Speaker 1: decisions with the data we have, So I take my
Speaker 1: own views and.
Speaker 3: That of my staff with a heavy.
Speaker 1: Grain of salt. When things are changing a lot. We've
Speaker 1: seen in the last three years, unexpected, unprecedented shocks hitting us.
Speaker 3: I'm sure we'll get some more in twenty six, But.
Speaker 1: As I say, I'm still optimistic that we're basically along
Speaker 1: with solid growth a steady labor market. We've got some
Speaker 1: encouraging and some discouraging signs coming on the inflation side.
Speaker 1: If we could just get some improvement, I feel like
Speaker 1: we could still get back on the golden path that
Speaker 1: we were on before.
Speaker 2: Another Kevin Warsh idea is that the FED should go
Speaker 2: back to a scarce reserves way of managing monetary policy.
Speaker 2: Would you support that.
Speaker 1: We should constantly be evaluating as a body what we're
Speaker 1: doing and the efficacy of doing that. We switched out
Speaker 1: of that scarce reserves based regime to what we do
Speaker 1: now because in crisis there were some holes in a
Speaker 1: scarce reserves regime. It's possible we should study it, we
Speaker 1: should contemplate that if we're going to seriously think about
Speaker 1: doing that, we probably do want to revisit some of
Speaker 1: the logic of how we got to where we are
Speaker 1: now and moved away from that.
Speaker 2: Coming up as J Powle's in theory he'll leave the chairmanship,
Speaker 2: he could stay on the board. A lot of people
Speaker 2: looked at the last decision and noted that in January
Speaker 2: you always choose the chairman for the rest of the
Speaker 2: year for the Open Market Committee, and that's what you
Speaker 2: did this time, instead of as has been done in
Speaker 2: the past, saying chairman until successor is in place. If
Speaker 2: Kevin Walsh is not confirmed by then, would you support
Speaker 2: J Powell remaining as chairman of the Open Market Committee.
Speaker 3: I don't know.
Speaker 1: It sounds like you have a lot more expertise on
Speaker 1: the language of these decisions. I've said unapologetically, I think
Speaker 1: Jay Pole's a first ballot Hall of Fame FED chair
Speaker 1: and I'm a big supporter of his.
Speaker 3: I don't know what the what the rules are when
Speaker 3: people's terms.
Speaker 1: Expire as chair, are they allowed to stay on if
Speaker 1: they are I'm a I'm a big Jay Pali support.
Speaker 3: Well.
Speaker 2: J Paul can stay on as a governor, certainly, and
Speaker 2: would you like to see him do that?
Speaker 3: I don't know. I like being him being around for sure.
Speaker 2: So you're not gonna have you talked to him about
Speaker 2: it at all.
Speaker 1: I haven't talked to him about that, And it's not
Speaker 1: it's not my place, you know. The rules of the
Speaker 1: thing are we speak only for ourselves. We're not supposed
Speaker 1: to talk about what anybody else's thoughts are, opinions, or
Speaker 1: speak for the committee.
Speaker 3: So I don't really have.
Speaker 2: It, okay, I think to add on it, last question,
Speaker 2: all politics are local for the Chicago district. This is
Speaker 2: a message for you. Do you support the Bears going
Speaker 2: to Indiana?
Speaker 1: Look at the Chicago Bears wherever they build a stadium,
Speaker 1: they better be called the Chicago Bears.
Speaker 3: But where the public financing? That's out of the FEDS,
Speaker 3: that's out of the fed's length.
Speaker 2: Saved the toughest question for exactly Austin Golby, thank you
Speaker 2: very much for the president of the Chicago Fed.