Why Austan Goolsbee Is Still Concerned About Inflation

Austan Goolsbee (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

So Tracy, we are recording this on Thursday, August 21st. We are here at Jackson Hall. I need to note at the beginning, we were recording this before the big Powell speech. I don't really think it matters too much, because that's not, but I just want to like get that out of the way, a little timing context for an econ conversation.

Tracy Alloway (0:41)

We're not going to talk about that speech for obvious reasons. We don't know what's going to be said, but what we can talk about is the economy right now. That's not going to change between right now and tomorrow morning, hopefully.

Joe Weisenthal (0:53)

Whenever this comes out, probably it's not going to change much, but we've been very lucky lately. We've been talking to a lot of regional Fed presidents, and it's really cool that we have access to them.

Tracy Alloway (1:03)

Yes, and it's good to get a range of opinions as well, because as we've been discussing, the economy does look very uncertain right now, and you could make a case for everything from a rate cut to holding to possibly even maybe hiking, which Jeff Schmidt kind of alluded to when we interviewed him.

Joe Weisenthal (1:21)

Yeah, no, it was pretty extraordinary that, like, look, you could make a point that stock market's near record highs, credit spreads in your record lows, employment low and inflation still warm. Why are we talking about rate cuts? Anyway, we got to keep getting more takes and perspectives on this from the people who actually think about this the best.

Tracy Alloway (1:39)

Do we get a prize if we interview every Fed president?

Joe Weisenthal (1:43)

Well, we should try. There should be a name for that, but we have a guest, perfect guest, someone we've talked to on the podcast before. Very excited to have live here in Jackson Hall, past Odd Lots guest, Chicago Fed President Austan Goolsbee. So, Austan, thank you so much.

Austan Goolsbee (1:57)

I'm going to give you a prize. Now, I drove here. I just got here. I just got in an hour and a half ago. I believe that I've driven the farthest of anybody to get here.

And one of the things I did on the way was finish my 50th state, North Dakota. And it turns out there's a lot of people. North Dakota is their last state. And there's officially a club called the Best for Last Club. And I joined the Best for Last Club. So who's going to be your 12th Reserve Bank president? You're going to get a prize.

Joe Weisenthal (2:35)

Congratulations. I saw your road trip on Twitter. I saw that you were posting.

Austan Goolsbee (2:39)

There are some amazing national parks on the way.

Joe Weisenthal (2:41)

We have a great country, don't we?

Austan Goolsbee (2:43)

Yeah, we got an amazing country.

Joe Weisenthal (2:46)

How's the economy look at you these days?

Austan Goolsbee (2:48)

Well, depends which direction you're facing. As you know, I thought for Q1 coming into April, it was looking pretty good. We had a stable, full employment, the unemployment rate a little above four. Inflation, while having been above the target for four years, looked to me like it was heading, it was coming down and down and down and was headed to 2%.

And so I thought reasonable approximation, rates need to start heading down to where we think they're gonna settle, which is a fair bit below where we were then, where we are today.

Then we go through some bumps, I've heard of them, through a bunch of dirt in the air, all of this stuff that it's like, is the economy still where it was in January, February, March, or are we on some different path? I still closet hope slash think that we're where we were before and that tariffs, imported goods are only 11% of GDP. If they'll stay in their lane, if we don't keep escalating them, if we don't willy nilly apply them to intermediate goods so that they turn into higher cost of production, it'd probably be okay. And we had a couple of months of benign inflation numbers, and then we got the last inflation number, which is a little less benign, and the rise of services inflation threw me for a little bit of a cross current. So I'd say I've still got one eye on inflation. We're now four and a half years above the target. It's one thing to be four and a half years above the target, but we're still clearly trending down. If we start trending up and you start seeing inflation rising in non-tariff affected categories, like what we saw on services, then I'm gonna get a little more nervous on that side. And on the job side, I still feel like we're something like stable full employment. The revisions, they are concerning. We also know that the labor supply and population growth, when there's big immigration things happening, add a lot of noise to just monthly payroll. So I don't want to over index on that. I want to take multiple measures. The four horsemen of truth and justice, in my view, are rates. They're less susceptible to the immigration and population labor supply problems. They're the unemployment rate, the hiring rate, the layoff rate, the vacancy rate. If you look at those rates, three of them still say, this is basically full employment and it's looking fine. It looks very similar to 2018, 2019, a strong job market. The hiring rate is low. And if you talk to parents of kids graduating from college, you hear, it's tough to get a job. We're in a low separations, low hiring environment. But that might be full employment, okay? So that's why I say, I don't come to it averse to cutting of rates. If we get through this and we can get some stuff settled on the tariff side, we might easily still be on the golden path. It might still make perfect sense to keep going down. But we've just got a couple of flags at the same time.