WEBVTT - Chicago Fed President Austan Goolsbee Talks Jobs Report & Risk of Low Inflation

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<v Speaker 1>Let's turn back to the economy. Of course, that is

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<v Speaker 1>the story of the morning, and who better to talk

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<v Speaker 1>about it with than Mike McKee. He is Bloomberg's chief

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<v Speaker 1>International Economics and Policy correspondent.

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<v Speaker 2>So we just heard from Julie Sue.

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<v Speaker 1>Of course you have a great conversation with Austin Goldsby

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<v Speaker 1>coming up. But you think about the details of what

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<v Speaker 1>has been agreed to when it comes to the port's

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<v Speaker 1>sixty two percent wage increase there, what does that mean

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<v Speaker 1>for inflation?

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<v Speaker 3>Well, it's a good question, and we do have a

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<v Speaker 3>maybe inflation coming back is a little more for a

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<v Speaker 3>little more emphasis with the Fed. But generally, when you

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<v Speaker 3>have a contract like this, what it means is you

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<v Speaker 3>get it raised once a year, say January, which is

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<v Speaker 3>when most people come in that get seasonally adjusted. So

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<v Speaker 3>you have a one time rise in the inflation rate perhaps,

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<v Speaker 3>but then it doesn't keep going over the years. So

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<v Speaker 3>while this is a significant contract increase for the workers

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<v Speaker 3>on a year over year basis, it won't have a

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<v Speaker 3>major impact. Each year. You'll ratchet up a little more

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<v Speaker 3>than you otherwise would. But it's also somewhere around eighty

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<v Speaker 3>thousand workers who get covered under this contract, and we

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<v Speaker 3>have one hundred and fifty five million people working in

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<v Speaker 3>the country, so it probably won't have as much of

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<v Speaker 3>an inflation impact as it could have if there were

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<v Speaker 3>more unions that followed this as a pattern bargain.

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<v Speaker 2>I'm going to be the wet blanket.

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<v Speaker 4>I think past November a little bit here, because of

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<v Speaker 4>course you have another FED meeting. Of course, those fifty

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<v Speaker 4>basis point rate cut bets getting wiped out of the

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<v Speaker 4>market at the moment, but you still have one hundred

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<v Speaker 4>and sixty basis points worth of rate cuts through the

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<v Speaker 4>end of next year. At the end of the day,

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<v Speaker 4>how muney might the picture be an employment just even

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<v Speaker 4>through the end of this year, given what we've seen

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<v Speaker 4>with the hurricane, given contract negotiations not just at the.

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<v Speaker 3>Ports, well, not quite as muddy as it would have

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<v Speaker 3>been if the port strike continued. We have Boeings still

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<v Speaker 3>out on strike. If that's not settled by the time,

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<v Speaker 3>well by next week, I guess is when we go

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<v Speaker 3>into the survey week, then will have to subtract thirty

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<v Speaker 3>eight thousand or from whatever the total is. And then

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<v Speaker 3>we don't know yet what the hurricane impact is going

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<v Speaker 3>to be. But we know it's going to be larger

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<v Speaker 3>than usual, and so the BLS will put a note

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<v Speaker 3>in their report for October their best estimate of what

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<v Speaker 3>the impact is, so we can subtract that out. We'll

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<v Speaker 3>see how much of an impact it has. And the

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<v Speaker 3>FED will look through both of those things because they

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<v Speaker 3>know that they're temporary. And what ends up happening with

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<v Speaker 3>natural disasters is you end up with more spending because

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<v Speaker 3>of the rebuilding, and probably there will be a lot

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<v Speaker 3>of jobs that are lost but then recreated after this

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<v Speaker 3>over a period of time.

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<v Speaker 1>That's a really interesting point. So in a way, I

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<v Speaker 1>mean there is an economic benefit here to that rebuilding effort.

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<v Speaker 3>Yeah, it's always tough to be an economist and say

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<v Speaker 3>that because obviously this is a major tragedy for the

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<v Speaker 3>people who are involved. It's a horrible, horrible thing. But

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<v Speaker 3>history show is that because of the money that's spent

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<v Speaker 3>to rebuild, you end up with a little bit of

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<v Speaker 3>a boost to GDP.

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<v Speaker 1>A boost to GDP, but of course a messier economic report.

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<v Speaker 1>When it comes to next month's jobs report, it sounds like.

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<v Speaker 3>A little bit messier, but less so now that the

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<v Speaker 3>port strike is settled. It comes four days before the election,

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<v Speaker 3>if you have a report like this, I know one

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<v Speaker 3>campaign that would be very happy if they got this

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<v Speaker 3>November first.

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<v Speaker 4>You know, there's also inflation next week. If anyone's paying attention.

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<v Speaker 1>I think they are. I would imagine that they are

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<v Speaker 1>paying attention to inflation. And of course next month's jobs report,

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<v Speaker 1>which is the final jobs report before the election, which

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<v Speaker 1>of course the Federal Reserve will be paying close attention to.

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<v Speaker 2>And I know that coming up.

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<v Speaker 1>You have a great conversation right now.

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<v Speaker 3>Yes, we're going to turn our attention now to the

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<v Speaker 3>Federal Reserve and Chicago Fed President Austin Goulsby, who joins

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<v Speaker 3>us now to talk about the numbers that we've just

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<v Speaker 3>gotten and what it may mean for him and what

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<v Speaker 3>it may mean for the Fed. Good morning, Austin, Thank

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<v Speaker 3>you for being with us, and you knowing good morning

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<v Speaker 3>to you know where I got to go first. You're

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<v Speaker 3>the one that said we need to cut significantly in

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<v Speaker 3>the future in order to keep the unemployment rate from rising.

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<v Speaker 3>Do you still feel that way after the unemployment rate

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<v Speaker 3>fell and if it was rounded down by two hundreds

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<v Speaker 3>of a percentage, but it would have been four percent.

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<v Speaker 2>Yeah.

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<v Speaker 5>Look, my statement was about over the next year and

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<v Speaker 5>what's the long arc This job's number today and the

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<v Speaker 5>whole report is a superb report. You really couldn't ask

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<v Speaker 5>realistically for a better report for the economy. Coupled with

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<v Speaker 5>the finding out that the port strike is not going

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<v Speaker 5>to be an extended matter, and then that at least

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<v Speaker 5>for months this is not going to be an issue,

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<v Speaker 5>those are two pieces of very good news for the economy.

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<v Speaker 5>I still think as a central bank you don't want

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<v Speaker 5>to react too much to one month's report, but the

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<v Speaker 5>revisions of the previous months upward in jobs growth and

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<v Speaker 5>the unemployment rate coming down. If we get more reports

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<v Speaker 5>like this, I'm going to feel a lot more confident

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<v Speaker 5>that we are in fact settling in at full employment.

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<v Speaker 3>I know this has only been out now for a

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<v Speaker 3>little more than an hour. Has your staff where you

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<v Speaker 3>looked into it enough to try to figure out why

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<v Speaker 3>the report was so good?

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<v Speaker 2>Well, I mean you're getting a lot of.

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<v Speaker 5>The estimates of GDP growth still continuing to suggest that

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<v Speaker 5>growth remains robust. So I think the first thing about

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<v Speaker 5>job growth is that it's tied to how the economy

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<v Speaker 5>is doing.

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<v Speaker 2>So if you.

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<v Speaker 5>Get strong reports, that's likely to be correlated with strong

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<v Speaker 5>GDP growth.

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<v Speaker 2>As I say, we've.

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<v Speaker 5>Got some cross currents and we need to take the

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<v Speaker 5>longer arc we've had. We had previous to this one

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<v Speaker 5>two disappointing numbers. Now we have a superb number and

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<v Speaker 5>we need to keep monitoring it. If we get more

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<v Speaker 5>reports like this, as I say, I think we should

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<v Speaker 5>have more confidence that we are in fact settling in

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<v Speaker 5>at the landing spot that we want from a dual

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<v Speaker 5>mandate perspective. Inflation has been coming in right around two percent.

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<v Speaker 5>If the unemployment rate is going to settle down, something

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<v Speaker 5>just over for you would love to freeze, frame that

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<v Speaker 5>and put the picture on the wall.

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<v Speaker 3>Does this perhaps change the emphasis a little bit for

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<v Speaker 3>the Open Market Committee? Jay Powell saying at his last

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<v Speaker 3>news conference that the risks to inflation and to employment

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<v Speaker 3>are about balanced, but we're more worried about employment. Do

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<v Speaker 3>you have to add more weight on the inflation side now.

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<v Speaker 2>I don't know.

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<v Speaker 5>I agreed absolutely with what Chair Pell said the press

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<v Speaker 5>conference that we went through a period where getting inflation

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<v Speaker 5>down from its extreme highs was the order of the day,

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<v Speaker 5>that was really almost the sole focus. And now when

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<v Speaker 5>we had two disappointing jobs numbers. It made clear we're

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<v Speaker 5>in a balanced environment with balance risks. That we got

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<v Speaker 5>a superb number I'm extremely happy with. But let's not

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<v Speaker 5>lose sight of what's the longer thread over the next year.

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<v Speaker 5>If you look at the SEPs and the dot plot,

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<v Speaker 5>a large majority of the Committee feels that conditions are

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<v Speaker 5>going to improve on inflation, that we're going to keep

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<v Speaker 5>getting closer to two percent target, that the unemployment rate

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<v Speaker 5>is going to stabilize at full employment, and that rates

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<v Speaker 5>are going to come down a lot over the next

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<v Speaker 5>year twelve days, eighteen months, and that seems quite appropriate.

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<v Speaker 5>You know, if you are in a good spot on

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<v Speaker 5>the dual mandate, that inflation and unemployment are where you

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<v Speaker 5>want them, you just got to be careful keeping the

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<v Speaker 5>rates as restrictive as they are, so far above where

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<v Speaker 5>committee members think they need to settle.

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<v Speaker 2>If you're not careful.

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<v Speaker 5>About that, you will lose the freeze frame that you

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<v Speaker 5>want on either inflation or on employment. And if you

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<v Speaker 5>look at expectations, there are some signs that inflation might

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<v Speaker 5>undershoot the two percent target, and we want to be

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<v Speaker 5>mindful of that too.

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<v Speaker 3>Well, let me ask you if you're looking at inflation

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<v Speaker 3>that might undershoot the target. Are you you think you're

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<v Speaker 3>too restrictive? But yet we're seeing growth of three point

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<v Speaker 3>one percent according to the now casters, and we're seeing

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<v Speaker 3>a two hundred and fifty four thousand jobs print. Are

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<v Speaker 3>we really that restrictive?

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<v Speaker 5>Well, you have cross currents, That's what I'm trying to emphasize.

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<v Speaker 5>There are pieces of strong data and then there are

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<v Speaker 5>pieces of weakness. And the if you just look at

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<v Speaker 5>the dot blots, where does the committee feel that it

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<v Speaker 5>will be appropriate for rates to settle.

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<v Speaker 2>It's a long way below where it is now.

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<v Speaker 5>If you think of that as as what our star

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<v Speaker 5>neutral rates would be. So that is the sense in which,

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<v Speaker 5>over a long period we need to get what's the

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<v Speaker 5>through line, and we need to try to maintain conditions

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<v Speaker 5>very much like what they are now. So if we

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<v Speaker 5>get more reports where GDP is strong and the unemployment

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<v Speaker 5>rate is staying in the four point one range or

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<v Speaker 5>even going down, then we i have a lot more

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<v Speaker 5>confidence that we're hitting the target that we want.

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<v Speaker 3>Well, do you think the neutral rate is higher? Now?

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<v Speaker 3>Where would you put it? Given the strength of the

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<v Speaker 3>economy that we see.

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<v Speaker 5>It's hard to say exactly what it is. I think

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<v Speaker 5>it is definitely higher in my mind than the zero

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<v Speaker 5>where we were for a lot of years before COVID.

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<v Speaker 5>If you just kind of look at those dot plots

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<v Speaker 5>the settling down range, the bulk of it looks to

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<v Speaker 5>be kind of in the two and a half to

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<v Speaker 5>three and a half sort of range. We're still a

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<v Speaker 5>ways off from having to sort that out. I guess

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<v Speaker 5>I would say, if you're at five and people think

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<v Speaker 5>you're going to end up between two and a half

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<v Speaker 5>and three and a half, you have both time and

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<v Speaker 5>runway to figure out where the settling point is.

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<v Speaker 2>Well.

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<v Speaker 3>The narrative coming into today was that companies weren't firing people,

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<v Speaker 3>but they weren't hiring people either, and obviously that was

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<v Speaker 3>not correct in the last month. What are you hearing

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<v Speaker 3>from companies in your district about their employment plans?

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<v Speaker 5>A lot of the we have thirty thirty five different

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<v Speaker 5>business roundtables throughout the year where we go and contact executives,

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<v Speaker 5>community leaders, community development, financial institutions, and we ask what

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<v Speaker 5>is the experience on the ground, and we have a

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<v Speaker 5>lot of business contacts. Mostly what I have heard has

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<v Speaker 5>been of the more of the same, steady, not going down,

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<v Speaker 5>but not really accelerating. So it'll be interesting to see

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<v Speaker 5>as we come through to the end of the year

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<v Speaker 5>here if the GDP now casts are correct that growth

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<v Speaker 5>is going to be higher than trend, let's call it

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<v Speaker 5>higher than expected. Will we start to see that in

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<v Speaker 5>the reflected in the comments for the Beage book and others.

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<v Speaker 5>The one thing is we're more intensive in manufacturing here

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<v Speaker 5>in the Midwest, and there is, as you know, a

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<v Speaker 5>bit of a shift back of consumer spending towards services

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<v Speaker 5>and away from physical goods as we fully come out

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<v Speaker 5>of the pandemic, So that weighs down economic activity a

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<v Speaker 5>little bit in the manufacturing sectors. But you've mostly been

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<v Speaker 5>hearing steady as she goes, not reacceleration and not real

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<v Speaker 5>drop off.

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<v Speaker 3>Well, then if it were up to you, I know

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<v Speaker 3>you're not a voter this year, you will be next year.

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<v Speaker 3>Does this report change the idea of how much the

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<v Speaker 3>Fed might want to cut in November?

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<v Speaker 2>And is it.

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<v Speaker 3>Possible we get another report that's good even if it's

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<v Speaker 3>not this good that you just stay on hold.

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<v Speaker 5>You know, I don't like pre committing before we've had

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<v Speaker 5>the discussion meetings for what the rate should be over

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<v Speaker 5>the longer run, which is what a central bank. The

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<v Speaker 5>hardest thing that central bank has to do is get

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<v Speaker 5>the timing exactly right when there are moments of transition.

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<v Speaker 2>So this isn't it easy process. There's definitely an art

0:13:21.000 --> 0:13:21.280
<v Speaker 2>to it.

0:13:21.720 --> 0:13:25.240
<v Speaker 5>If we get more reports like this, and I'm going

0:13:25.320 --> 0:13:30.520
<v Speaker 5>to have more confidence that we are settling in at

0:13:30.520 --> 0:13:36.880
<v Speaker 5>a full employment, low inflation kind of a baseline. If

0:13:36.920 --> 0:13:41.400
<v Speaker 5>you take the broad job market, I don't want us

0:13:41.440 --> 0:13:45.600
<v Speaker 5>to overreact to one month's report. We've seen if you

0:13:45.720 --> 0:13:49.920
<v Speaker 5>take vacancies to unemployment ratios, if you take the hiring rate,

0:13:50.000 --> 0:13:54.520
<v Speaker 5>the quit rate, a series of labor market indicators, they

0:13:54.559 --> 0:13:59.560
<v Speaker 5>suggest the job market has been cooling, but the level

0:13:59.760 --> 0:14:03.280
<v Speaker 5>is is quite favorable. And if we can settle in

0:14:03.360 --> 0:14:06.800
<v Speaker 5>at this level and things not get worse where that

0:14:06.840 --> 0:14:09.280
<v Speaker 5>would be a very very comfortable outcome.

0:14:09.760 --> 0:14:12.440
<v Speaker 3>Well, right now, we're looking at, as you mentioned, somewhere

0:14:12.520 --> 0:14:15.240
<v Speaker 3>between one hundred and fifty two hundred basis points of

0:14:15.800 --> 0:14:18.440
<v Speaker 3>additional reduction in the Fed funds rate by the end

0:14:18.480 --> 0:14:21.520
<v Speaker 3>of next year. Do you think that if we settle

0:14:21.560 --> 0:14:32.280
<v Speaker 3>in as you say, that would be significantly less.

0:14:29.120 --> 0:14:33.280
<v Speaker 5>If we have improving jobs numbers and GDP growth of

0:14:33.320 --> 0:14:39.120
<v Speaker 5>three percent from now to whatever we would I think

0:14:39.240 --> 0:14:42.840
<v Speaker 5>the first thing we'd start doing is say, is the

0:14:42.960 --> 0:14:47.840
<v Speaker 5>rapid productivity growth that we've observed for the last year

0:14:47.880 --> 0:14:51.200
<v Speaker 5>and a half, are we in a new period like

0:14:51.680 --> 0:14:54.040
<v Speaker 5>what we saw in the mid nineties. And if so,

0:14:54.520 --> 0:14:58.560
<v Speaker 5>we're going to have to recalibrate what is expected potential growth.

0:15:00.160 --> 0:15:03.560
<v Speaker 2>Well, if we get yeah.

0:15:03.280 --> 0:15:06.680
<v Speaker 5>You want more on that, well, I was going to say,

0:15:07.320 --> 0:15:11.200
<v Speaker 5>what the ultimate our star neutral rate that we're going

0:15:11.240 --> 0:15:14.920
<v Speaker 5>to settle down at depends a lot on what you

0:15:15.080 --> 0:15:18.320
<v Speaker 5>think that potential growth rate is. So if productivity growth

0:15:18.440 --> 0:15:21.440
<v Speaker 5>keeps booming like this, that does.

0:15:21.360 --> 0:15:23.160
<v Speaker 2>Imply a faster growth rate.

0:15:23.280 --> 0:15:27.480
<v Speaker 5>I think that does imply, just in the economics, that

0:15:27.480 --> 0:15:30.040
<v Speaker 5>there would be a higher our Star. But in a

0:15:30.080 --> 0:15:34.200
<v Speaker 5>way that would be the glorious version. It's only because

0:15:34.240 --> 0:15:35.520
<v Speaker 5>the economy could handle it.

0:15:36.000 --> 0:15:38.160
<v Speaker 3>All right, let me ask you one last question here.

0:15:39.160 --> 0:15:40.480
<v Speaker 3>Did we hit a soft landing?

0:15:43.160 --> 0:15:46.240
<v Speaker 5>Well, you know, the problem with the analogy of the

0:15:46.280 --> 0:15:49.880
<v Speaker 5>soft landing is that it cannotes stopping. The economy never stops,

0:15:50.080 --> 0:15:54.280
<v Speaker 5>so there's never there's never a mission accomplished. We hit

0:15:54.400 --> 0:15:57.960
<v Speaker 5>what I called the golden path already in twenty twenty three,

0:15:58.280 --> 0:16:02.800
<v Speaker 5>which was we got in inflation down substantially, almost as

0:16:02.840 --> 0:16:05.520
<v Speaker 5>much as it has ever fallen in a single year

0:16:06.080 --> 0:16:10.440
<v Speaker 5>without having recession. That's basically never been done before. If

0:16:10.560 --> 0:16:14.600
<v Speaker 5>now what we're what we're going to be able to do,

0:16:14.720 --> 0:16:18.640
<v Speaker 5>If we could keep unemployment in this between four and

0:16:18.720 --> 0:16:23.320
<v Speaker 5>four and a half percent with inflation of hovering around

0:16:23.320 --> 0:16:27.880
<v Speaker 5>the two percent target, that's exactly what the intention has

0:16:27.960 --> 0:16:31.480
<v Speaker 5>been all along for the FED, and everybody should be

0:16:31.520 --> 0:16:32.720
<v Speaker 5>happy if we can pull.

0:16:32.560 --> 0:16:36.400
<v Speaker 3>That off, all right, thanks to Austin Goolsby, he's the

0:16:36.440 --> 0:16:40.040
<v Speaker 3>president of the Federal Reserve Bank of Chicago. We'll see

0:16:40.080 --> 0:16:43.720
<v Speaker 3>on November seventh what the FED does next. Next employment

0:16:43.760 --> 0:16:48.600
<v Speaker 3>report is November first. This is Bloomberg