Headline

Fed’s Goolsbee: If inflation progress reverses, could merit rate hikes.
Fed’s Goolsbee: Markets should be focusing on economic data.
Fed’s Goolsbee: We need to see more progress on housing inflation.
Fed’s Goolsbee: Goods price inflation back to normal levels, there is surprising progress on services inflation too.
Fed’s Goolsbee: As inflation comes down it opens the door for rate cuts.
Fed’s Goolsbee: Real restrictiveness matters to me.
Fed’s Goolsbee: If we continue to make good progress on inflation, we need to factor that into policy rate.
Fed’s Goolsbee: Inflation data will dictate the rate path.
Fed’s Goolsbee: The Fed is not facing an imminent threat from the labor market.

Replay

Transcript

Steve Liesman: Talk about the Fed interest rates and the overall economy, joining us now Chicago Fair president Austin Goolsbee. Good morning Austin, are you feeling your influence start to spread in that now your colleagues are quoting you? You had Bostic yesterday talk about the golden path and even use the turkey frying analogy that I think was yours initially, Austin, so

Austin Goolsbee: yeah, you take what you can get. If they won’t listen to your monetary ideas, at least they’ll take your graphic examples.

Steve Liesman: They’re still stealing your metaphors, Austin. So, tell me something, are we on the golden path still? Are you more confident that we’re headed to that place where you end up with lower inflation without a recession?

Austin Goolsbee: Yeah, look, that’s what I said, the golden path. We’re definitely not off the Golden path. I mean, we haven’t come to the end of it, but in 2023 we’re going to look back and have to say, as far as the Fed’s dual mandate goes, of maximizing employment and restabilizing prices, we made a lot of progress on the golden path. In 2023, we’ll see what happens with PC inflation, I believe it’s next Friday. But we, inflation has come down a lot, and I’ve been highlighting for months with you, Steve, and elsewhere, that’s the thing that everybody should be watching to determine what will the Fed’s rate path end up being. It’s not about secret meetings or decisions; it’s fundamentally about the data and what will enable us to become less restrictive is if we have clear evidence that we’re on the path to get to the…

Steve Liesman: That’s a little unfair, Austin. Yeah, I can look at the direction of inflation, see it’s going down, and project that the Fed funds rate will come down. I don’t think that’s any kind of high-level math. What I can’t predict, though, is how soon you’re going to do it and how much you’re going to do it. So, I wonder, since you’re the last word before we go into the blackout period, if you could enlighten us on what you’re thinking is. How quickly will you feel confident to start cutting rates?

Austin Goolsbee: Well, as I always say, Steve, I don’t like tying my hands. We still have weeks of data, and the way the Fed Open Market Committee operates, we go meeting by meeting. So let’s not pre-commit ourselves on hypotheticals of what we would do in three meetings if we saw XYZ in the data. Let’s take the long view. If we continue to make surprising progress faster than was forecast on inflation, then we have to take that into account in determining the level of restrictiveness. We’ve had a restrictive policy with rates relatively high because we wanted to get inflation back to target, and that’s where we’ve been missing on our dual mandate. We’re making a lot of progress on that front, the inflation rate coming down, and as it does so, then we would clearly be evaluating the restrictiveness. But we don’t want to commit ourselves before the job is done. I mean, the job got to be done.

Steve Liesman: Instead of talking hypothetically, let’s talk theoretically. You’re five and three; I don’t even know if there’s quite a distinction there, but… I’m going to make it anyway. You’re at 5.38 now. You have a long run, you. I mean, the Federal Reserve has a long-run funds rate forecast of two and a half. Let’s call that 300 basis points of restraint being placed on the economy right now. That was the number in 2023. Can you say that there’s a need for the same amount of restraint to be placed on the economy, given that inflation is coming down?

Austin Goolsbee: I like that. You’re taking a theoretical approach, trying to back us into the hypothetical, but I see where you’re going. The only thing I will say is what matters in my mind is the real restrictiveness. So, what’s the rate minus what’s happening with inflation? I think I agree with the premise that as inflation comes down, that opens the door for reduction in restrictiveness. And we’ve seen inflation coming down. I continue to highlight, is it a however, maybe it’s a however. I continue to highlight that goods price inflation has returned basically to the mild deflation that it was before COVID. We’ve actually seen surprising progress on the services component of inflation, and the main thing in this short to medium term that we need to see more progress on is housing inflation. And we’ve seen some, and we have indicators from the market we will see more, but that’s where we focus.

Steve Liesman: You know that’s coming, it has to come. All of the private sector data shows. I mean, I’ve been surprised like you, every time I read the CPI number, that housing number has not come down, but it has to come down, doesn’t it?

Austin Goolsbee: It should, look, but I don’t want to jinx it. I’m not a superstitious person, but that’s where we must see progress. But that is why I’ve had some confidence and have been saying for a while, this golden path is possible. Now, historically, unusually, because we’re seeing supply chain improvements, we’re seeing the labor supply negative shock of COVID undoing, you’re seeing labor force participation coming back pretty robustly. We’re coming into better balance in terms of growth and in terms of our labor market indicators. And if we can do that while continuing to get toward the 2% target, we can reduce the level of restrictiveness. But the thing that will determine that, of course, is what happens in the data. So when the market is hinging on the words of Fed officials, I really think that’s a mistaken direction. What they should be hinging on are these inflation numbers and the jobs numbers and the growth numbers.

Steve Liesman: So far, though, it has been better than expected. I mean, retail sales are better. You know, all the data indicates that the job market is still tight. I’m just wondering, Austin, your view, is there any hike left to be worked through the economy? Are the long and variable effects over, or should we expect more in terms of hikes or of growth?

Austin Goolsbee: You’re saying of the Fed rate hikes.

Steve Liesman: The last hike was in July. Are we still working our way through that, or is that over? Long and variable effect lag effects, are they over?

Austin Goolsbee: You can’t answer that question unless you have a firmly held opinion of what’s going to happen in the data. If inflation was not tamed, if we started to get evidence that we clearly were not on the path to get to 2%, of course, rate increases would be back on the table. It’s a data dependency that we have to go from.