Fed's Musalem Says Economy Resilient Amid Cooling Labor Market

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Transcript

00:00We have some news in Washington that we may be getting close to the end of the shutdown,

00:05which would release data, but just in case that doesn't happen,

00:09based on what you know now, what do you think about the economy?

00:14Mike, good morning. Great to be here.

00:16I see an economy that has been pretty resilient,

00:19where growth has been roughly around potential, around 1.8 for this year,

00:24in spite of a lot of uncertainty.

00:26I see a labor market that has been around full employment,

00:29is around full employment, has been cooling, demand and supply have been cooling.

00:34And I see inflation, which has been closer to the 3% level than to our 2% target.

00:41Well, we know that when the data comes out, everybody will be parsing it carefully,

00:45but is it going to add a lot to your knowledge of where the economy is

00:49and possibly change any decision you might make?

00:52More data is better than less data, so we will learn.

00:55It always has additional value.

00:57I do feel that we have a pretty good sense of where the economy is.

01:01We have availed ourselves during this period of unofficial data dearth, let's call it that,

01:10with private sector data.

01:12We have been in close contact with all of our constituents, businesses, households,

01:18community leaders in our districts.

01:20I feel we have a pretty good sense of the economy,

01:22but I'm very much looking forward to seeing the official data releases

01:25because they are the gold standard, and they'll provide additional information.

01:29Well, what are companies in your district telling you?

01:32You know, they are saying that consumption has been resilient.

01:36They're saying that growth has been fine.

01:40They're saying the labor market has softened a little bit.

01:43They see many more applicants per vacancy.

01:47They report compensation growth somewhere between 3.5% to 4%.

01:52So things look reasonably okay.

01:56But the consumption that remains resilient,

02:00obviously at the upper ends you have the stock market wealth effect driving it,

02:03but I know you've been worried about the lower deciles because they're taking on more debt.

02:09That's exactly what's happening.

02:11So we estimate that the real consumption growth of the high-income folks

02:17and of the low-income folks hasn't been about the same.

02:20But, as you said, the higher-income households are consuming

02:24from the wealth effects they have in the stock market and home prices, by the way.

02:30Lower-income folks are taking on more debt.

02:32They're taking on more credit card debt, and that's how the economy has been thus far.