WEBVTT - Austin Goolsbee Talks Inflation Risk, Tariffs, Powell 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.800 --> 0:00:09.480 Well, thank you very much. We'd like to welcome all 0:00:09.600 --> 0:00:12.240 our viewers and listeners around the world to Bloomberg Radio 0:00:12.280 --> 0:00:15.000 and Television, and we'd like to welcome Austin Goolsby. Yeah, 0:00:15.000 --> 0:00:18.440 thank you for having Bloomberg Radio and Television. I want 0:00:18.480 --> 0:00:22.439 to start with the next meeting and the meetings beyond, 0:00:22.480 --> 0:00:26.599 because that's the general focus of the folks on trading desks. 0:00:27.240 --> 0:00:30.080 Coming out of the last two years, the focus seemed 0:00:30.080 --> 0:00:33.199 to be on the unemployment rate, on the labor market, 0:00:33.520 --> 0:00:36.599 and cutting rates to get ahead of a problem with 0:00:36.960 --> 0:00:39.320 the labor market. But listening to you this morning, it 0:00:39.400 --> 0:00:43.040 sounds like you're more concerned about inflation, that inflation may 0:00:43.120 --> 0:00:45.080 have become the primary risk. 0:00:45.520 --> 0:00:49.080 Yeah, I would say in my head in twenty three 0:00:49.240 --> 0:00:53.720 and twenty four since I've been on the FED, inflation's 0:00:53.760 --> 0:00:58.560 been it has never gone away as a central focus, 0:01:00.040 --> 0:01:02.720 and the labor market is deteriorating. 0:01:02.880 --> 0:01:06.720 It comes back in a major way. 0:01:07.280 --> 0:01:11.800 But I'm a little more concerned about inflation right now 0:01:11.800 --> 0:01:14.840 because I think the job market is pretty steady, I 0:01:14.880 --> 0:01:19.839 think growth is pretty steady. I think there's some promising 0:01:20.680 --> 0:01:25.160 stuff in the inflation reports, but there's also some warning signs. 0:01:25.680 --> 0:01:30.319 So as I say I'm not hawkish about rates, I'm 0:01:30.560 --> 0:01:35.360 pretty optimistic that we can get rates down further multiple 0:01:35.480 --> 0:01:39.720 cuts in twenty twenty six, as long as we see 0:01:39.720 --> 0:01:44.160 the progress on inflation that forecasters have been forecasting that 0:01:44.240 --> 0:01:47.200 it's supposed to start coming down, and I just want 0:01:47.880 --> 0:01:51.360 us to see some progress on that front and. 0:01:51.400 --> 0:01:52.480 Not get ahead of ourselves. 0:01:52.560 --> 0:01:54.080 Well, you talk about that a little bit, and it's 0:01:54.080 --> 0:01:56.480 a question I asked J Powell once is it seems 0:01:56.520 --> 0:01:58.280 like every time you put out a summary of economic 0:01:58.320 --> 0:02:02.040 projections that outlooked by the various members of the Open 0:02:02.040 --> 0:02:05.320 Market Committee, the two percent target gets hit two years 0:02:05.320 --> 0:02:08.480 from now. The next one it's two years from now exactly. 0:02:08.600 --> 0:02:12.200 So what goes wrong, That's a lot of things can 0:02:12.240 --> 0:02:12.720 go wrong. 0:02:15.040 --> 0:02:15.920 In this case. 0:02:16.200 --> 0:02:19.280 What I want to make sure is not going wrong 0:02:19.480 --> 0:02:26.400 is that we need inflation not to be persistent when 0:02:26.800 --> 0:02:29.800 the part of inflation that has come from tariffs is 0:02:29.840 --> 0:02:34.120 supposed to go away, is supposed to be transitory, and 0:02:35.440 --> 0:02:40.240 when you see things like the forecasts say inflation's going 0:02:40.320 --> 0:02:43.160 to peak out and then start falling by the end 0:02:43.240 --> 0:02:48.640 of twenty twenty five, and then that moves the goalpost. Well, 0:02:48.880 --> 0:02:52.880 maybe it'll be the first quarter of twenty six, and 0:02:52.960 --> 0:02:55.280 now they're saying, well, maybe it will be the second 0:02:55.360 --> 0:02:56.440 quarter of twenty six. 0:02:57.200 --> 0:03:01.519 That's not a great sign. We need to see. 0:03:01.440 --> 0:03:05.800 What we should see, especially on the good side. If 0:03:06.320 --> 0:03:11.120 the tariff inflation is transitory, it's supposed to start going away. 0:03:11.560 --> 0:03:14.920 And as soon as we start getting some evidence that 0:03:14.960 --> 0:03:18.080 we're back on the path to two percent, as I say, 0:03:18.240 --> 0:03:21.680 I think rates can still keep going down. And if 0:03:21.720 --> 0:03:25.760 you look at the at the SEP dot plot, a 0:03:25.919 --> 0:03:28.680 large group of the committee thinks that where rates will 0:03:28.720 --> 0:03:33.280 eventually settle is still well below where we are today. 0:03:33.720 --> 0:03:38.440 It's just we must get inflation down. 0:03:38.360 --> 0:03:42.520 From this three percent level that we've been stalled out 0:03:42.760 --> 0:03:44.560 at for now a year more. 0:03:44.720 --> 0:03:47.000 Well, now you've got this whole new tariff uncertainty from 0:03:47.040 --> 0:03:50.360 the Supreme Court. President's going to impose when you started today, 0:03:50.400 --> 0:03:53.440 a ten percent tariff universally brings down the tariff rates some, 0:03:53.960 --> 0:03:57.240 but they say they're going to use other means to 0:03:57.280 --> 0:04:00.160 get the tariff rates back up to about where they were. 0:04:00.400 --> 0:04:03.360 So now you'll have this dip perhaps in inflation, and 0:04:03.400 --> 0:04:05.360 then it could go back out again. So you said 0:04:06.000 --> 0:04:10.840 you want to see inflation going down. Does that get 0:04:10.920 --> 0:04:13.560 pushed out? Does it become later in this year when 0:04:13.560 --> 0:04:14.960 you can even think about things. 0:04:15.280 --> 0:04:18.200 I think when I'm out in the seventh District in 0:04:18.240 --> 0:04:23.080 the Midwest talking to folks, they talk a lot about uncertainty, 0:04:23.440 --> 0:04:29.200 policy uncertainties and geopolitical uncertainties. The thing to remember about 0:04:29.240 --> 0:04:35.120 the terriffs, even if the tariffs stay exactly as they were, 0:04:35.160 --> 0:04:40.120 just in a different form, the inflation impact is supposed 0:04:40.160 --> 0:04:45.159 to go away. So if the rates are lower than 0:04:45.320 --> 0:04:48.560 what they were before, that should be that should make 0:04:48.600 --> 0:04:51.320 it even more true that we should see the inflation 0:04:51.440 --> 0:04:57.120 going down. I think that the policy uncertainty we're seeing. 0:04:56.800 --> 0:04:58.359 More on the labor side. 0:04:58.400 --> 0:05:03.760 I think the low hiring, low firing environment is what 0:05:03.800 --> 0:05:07.080 you would expect when there's a lot of uncertainty. That's 0:05:07.200 --> 0:05:10.919 not really what the beginning of a recession looks like. 0:05:11.720 --> 0:05:15.599 Low hiring with high layoffs, that's what the beginning of 0:05:15.600 --> 0:05:16.640 a recession looks like. 0:05:17.160 --> 0:05:19.320 For both of those to be low is a bit 0:05:19.360 --> 0:05:23.920 of a weird duck, and I think is explained by 0:05:25.279 --> 0:05:29.240 a lot of we want to wait and see what's 0:05:29.320 --> 0:05:32.359 going to happen, and so if you have question marks 0:05:32.600 --> 0:05:36.680 coming from the Supreme Court, coming from other policy responses, 0:05:37.080 --> 0:05:40.280 I think you're likely to see continuation of that low hiring, 0:05:40.320 --> 0:05:41.440 low firing environment. 0:05:41.720 --> 0:05:45.440 Well, what are CEOs telling you they want to see 0:05:45.680 --> 0:05:47.680 before they would be willing to hire again. 0:05:49.320 --> 0:05:52.080 What they tend to say is, we want to know 0:05:52.120 --> 0:05:53.680 what the rules of the road are going to be, 0:05:54.200 --> 0:05:56.000 And right now we don't know what the rules of 0:05:56.040 --> 0:05:57.960 the road are going to be, and there could be 0:05:58.200 --> 0:06:04.200 very significant changes. And look, I'm sympathetic with that the 0:06:04.279 --> 0:06:07.479 rules are moving around. If you're in a business like 0:06:07.560 --> 0:06:12.240 the auto industry. The Chicago Fed District has by far 0:06:12.279 --> 0:06:15.719 the most auto production in the United States. It's a 0:06:15.920 --> 0:06:20.679 global supply chain for the auto industries. They're very amped 0:06:20.800 --> 0:06:25.080 up about what will be the treatment of parts, components, 0:06:25.080 --> 0:06:29.479 supplies that they used to make the cars. So far, 0:06:30.000 --> 0:06:36.640 they were pleasantly surprised that anything USMCA compliant was kind 0:06:36.640 --> 0:06:43.200 of exempted. Now, if the rumors are to be true 0:06:43.320 --> 0:06:50.080 that whatever they might renegotiate the USMCA or would Canada 0:06:50.160 --> 0:06:55.600 be in the USMCA, of course, that's what they're going 0:06:55.640 --> 0:06:58.440 to express. Uncertainty about things like that, and it's going 0:06:58.480 --> 0:07:01.480 to affect their decisions in short run. 0:07:02.760 --> 0:07:04.760 Over the long run, as I say. 0:07:04.760 --> 0:07:09.600 I still think the American consumer has been pretty solid. 0:07:10.400 --> 0:07:14.720 We've got a steady job market. If we'd make progress 0:07:14.760 --> 0:07:18.440 on inflation, I think rates are trending now. 0:07:18.760 --> 0:07:23.120 Well, we've seen productivity rise a little bit in the 0:07:23.160 --> 0:07:26.840 last couple of months. When you look at what the 0:07:26.880 --> 0:07:30.560 companies are telling you, are they saying, maybe we don't 0:07:30.640 --> 0:07:32.840 need to hire as many people because we're getting this 0:07:33.040 --> 0:07:36.560 job done, We're keeping up with orders. 0:07:37.120 --> 0:07:41.680 Some I mean, the economy is extremely diverse, and the 0:07:41.920 --> 0:07:45.760 answer to the question of what are the labor market 0:07:45.800 --> 0:07:48.880 prospects and do they need to hire depends very much 0:07:48.920 --> 0:07:53.200 on the industry. If you talk to software companies, a 0:07:53.240 --> 0:07:56.920 lot of them are saying, hey, the AI technologies, there's 0:07:56.960 --> 0:08:01.360 some uncertainty, but the only uncertainty is should we not 0:08:01.680 --> 0:08:05.800 higher or should we actually let people go. But if 0:08:05.800 --> 0:08:10.120 you look in the healthcare sector, it's a booming sector. 0:08:11.120 --> 0:08:15.320 Employment continues to expand in that sector, and you don't 0:08:15.360 --> 0:08:18.400 hear some of those So the answer that depends a 0:08:18.440 --> 0:08:19.680 lot on who you're talking to. 0:08:20.000 --> 0:08:22.080 Well, productivity is going to be a big issue for 0:08:22.360 --> 0:08:25.320 the FED coming up with a new chairman coming in 0:08:25.560 --> 0:08:28.320 Kevin Warsh, who's pretty much weed to the idea that 0:08:28.360 --> 0:08:31.560 AI is going to create a lot of additional productivity 0:08:31.600 --> 0:08:34.760 which will bring inflation down. Now, having talked to you, 0:08:34.800 --> 0:08:37.480 I know that you're not as sure about that. 0:08:38.559 --> 0:08:43.160 Yeah, look, I hope that that is what happens. 0:08:43.320 --> 0:08:46.960 Let's remember, productivity growth is the thing that makes us rich. 0:08:47.160 --> 0:08:50.480 So if we get high productivity growth, incomes are going 0:08:50.559 --> 0:08:54.600 to go up. There are a balance of things that 0:08:54.679 --> 0:08:58.520 happen when productivity goes up, though that we should remember. 0:08:59.080 --> 0:09:04.240 It can be deflationary. At the same time, it can 0:09:04.559 --> 0:09:07.720 still and you have seen it. It can stimulate a 0:09:07.720 --> 0:09:11.120 lot of investment, and in the short run, people counting 0:09:11.240 --> 0:09:17.840 on future productivity growth can overheat the economy just in 0:09:17.880 --> 0:09:20.960 the near term. And as you go around the country 0:09:21.160 --> 0:09:25.920 you hear a lot of discussion about data center investment demand, 0:09:26.760 --> 0:09:30.440 using up all the HVAC people, buying up all the 0:09:30.440 --> 0:09:35.600 electrical equipment, using up computer chips, and in a way 0:09:35.800 --> 0:09:40.640 making prices higher for the rest of the economy. We 0:09:40.800 --> 0:09:44.280 just got to think about some of those issues. What 0:09:44.720 --> 0:09:48.800 are the implications of high productivity growth? But overall, if 0:09:48.880 --> 0:09:53.160 that is Kevin Walsh's position, I've known them a long time. 0:09:53.400 --> 0:09:56.520 I respect him a great deal. I mostly agree with him. 0:09:56.960 --> 0:09:59.280 Now in March, you have to come up with a 0:09:59.320 --> 0:10:03.080 new economic projections, a set of forecasts for where you 0:10:03.080 --> 0:10:06.719 think the economy will go. You're probably going to be 0:10:06.800 --> 0:10:08.960 waiting a while till you have to actually put those 0:10:09.000 --> 0:10:11.560 on paper. But let me ask this, how much confidence 0:10:11.559 --> 0:10:13.960 are you going to have given everything that's going on 0:10:14.040 --> 0:10:15.840 right now in the numbers you put down. 0:10:17.679 --> 0:10:20.439 Do you want to view that as much confidence as 0:10:20.440 --> 0:10:24.160 we ever have or it's not very much confidence? 0:10:24.440 --> 0:10:26.520 Both of those can be true. 0:10:27.240 --> 0:10:31.320 There's a lot of uncertainty, and we have to make 0:10:31.400 --> 0:10:36.480 decisions with the data we have, So I take my 0:10:36.640 --> 0:10:38.400 own views and. 0:10:38.440 --> 0:10:40.719 That of my staff with a heavy. 0:10:40.480 --> 0:10:43.280 Grain of salt. When things are changing a lot. We've 0:10:43.280 --> 0:10:50.520 seen in the last three years, unexpected, unprecedented shocks hitting us. 0:10:50.640 --> 0:10:55.240 I'm sure we'll get some more in twenty six, But. 0:10:55.360 --> 0:11:00.640 As I say, I'm still optimistic that we're basically along 0:11:00.800 --> 0:11:05.480 with solid growth a steady labor market. We've got some 0:11:06.559 --> 0:11:10.679 encouraging and some discouraging signs coming on the inflation side. 0:11:11.080 --> 0:11:13.480 If we could just get some improvement, I feel like 0:11:13.679 --> 0:11:17.880 we could still get back on the golden path that 0:11:17.920 --> 0:11:18.800 we were on before. 0:11:19.200 --> 0:11:21.960 Another Kevin Warsh idea is that the FED should go 0:11:22.040 --> 0:11:27.920 back to a scarce reserves way of managing monetary policy. 0:11:27.960 --> 0:11:29.040 Would you support that. 0:11:31.080 --> 0:11:37.320 We should constantly be evaluating as a body what we're 0:11:37.360 --> 0:11:41.200 doing and the efficacy of doing that. We switched out 0:11:41.240 --> 0:11:47.120 of that scarce reserves based regime to what we do 0:11:47.240 --> 0:11:53.800 now because in crisis there were some holes in a 0:11:53.840 --> 0:11:59.200 scarce reserves regime. It's possible we should study it, we 0:11:59.200 --> 0:12:04.560 should contemplate that if we're going to seriously think about 0:12:04.600 --> 0:12:08.120 doing that, we probably do want to revisit some of 0:12:09.440 --> 0:12:11.839 the logic of how we got to where we are 0:12:11.920 --> 0:12:13.600 now and moved away from that. 0:12:15.240 --> 0:12:20.800 Coming up as J Powle's in theory he'll leave the chairmanship, 0:12:20.960 --> 0:12:24.160 he could stay on the board. A lot of people 0:12:24.200 --> 0:12:28.040 looked at the last decision and noted that in January 0:12:28.120 --> 0:12:30.880 you always choose the chairman for the rest of the 0:12:30.960 --> 0:12:33.760 year for the Open Market Committee, and that's what you 0:12:33.840 --> 0:12:36.040 did this time, instead of as has been done in 0:12:36.080 --> 0:12:40.000 the past, saying chairman until successor is in place. If 0:12:40.520 --> 0:12:43.600 Kevin Walsh is not confirmed by then, would you support 0:12:43.840 --> 0:12:46.719 J Powell remaining as chairman of the Open Market Committee. 0:12:47.440 --> 0:12:48.000 I don't know. 0:12:48.320 --> 0:12:51.199 It sounds like you have a lot more expertise on 0:12:51.240 --> 0:12:57.200 the language of these decisions. I've said unapologetically, I think 0:12:57.280 --> 0:12:59.920 Jay Pole's a first ballot Hall of Fame FED chair 0:13:00.280 --> 0:13:02.400 and I'm a big supporter of his. 0:13:03.360 --> 0:13:08.400 I don't know what the what the rules are when 0:13:08.559 --> 0:13:09.880 people's terms. 0:13:09.640 --> 0:13:13.439 Expire as chair, are they allowed to stay on if 0:13:13.480 --> 0:13:16.120 they are I'm a I'm a big Jay Pali support. 0:13:16.320 --> 0:13:16.480 Well. 0:13:16.559 --> 0:13:19.679 J Paul can stay on as a governor, certainly, and 0:13:19.880 --> 0:13:21.040 would you like to see him do that? 0:13:22.120 --> 0:13:26.280 I don't know. I like being him being around for sure. 0:13:27.679 --> 0:13:30.120 So you're not gonna have you talked to him about 0:13:30.160 --> 0:13:30.520 it at all. 0:13:30.679 --> 0:13:33.680 I haven't talked to him about that, And it's not 0:13:34.000 --> 0:13:36.040 it's not my place, you know. The rules of the 0:13:36.280 --> 0:13:39.560 thing are we speak only for ourselves. We're not supposed 0:13:39.600 --> 0:13:43.280 to talk about what anybody else's thoughts are, opinions, or 0:13:43.320 --> 0:13:44.319 speak for the committee. 0:13:44.360 --> 0:13:45.760 So I don't really have. 0:13:45.800 --> 0:13:47.840 It, okay, I think to add on it, last question, 0:13:47.880 --> 0:13:50.880 all politics are local for the Chicago district. This is 0:13:50.920 --> 0:13:53.800 a message for you. Do you support the Bears going 0:13:53.800 --> 0:13:54.360 to Indiana? 0:13:57.080 --> 0:14:00.640 Look at the Chicago Bears wherever they build a stadium, 0:14:01.920 --> 0:14:04.760 they better be called the Chicago Bears. 0:14:05.679 --> 0:14:11.840 But where the public financing? That's out of the FEDS, 0:14:12.240 --> 0:14:13.520 that's out of the fed's length. 0:14:13.880 --> 0:14:17.440 Saved the toughest question for exactly Austin Golby, thank you 0:14:17.520 --> 0:14:20.000 very much for the president of the Chicago Fed.