00:00Austin Goolsbee, the president of the Chicago Federal Reserve.
00:03And of course, everybody wants to know what the Fed's going to do.
00:06The Fed's worried about jobs.
00:07And today you had a number to worry about.
00:09Yeah, it's a tough mess on the jobs report today.
00:12You never want to over-index on one month's report.
00:16And I've been consistently saying, let's not index on total payroll employment anyway,
00:23because a lot of stuff is going on with immigration, with population growth.
00:28That said, you saw the unemployment rate inching up.
00:32And one month is not a trend, but it's not a good month.
00:37If you got several months like that, that would be a concerning spot for the labor market.
00:43What's your feeling about what the Open Market Committee is going to do?
00:47I know you've been waiting to see data.
00:49Chris Waller has been saying he's still in favor of cutting, as is Stephen Myron.
00:54Where do you come down now?
00:56Well, as you know, and I appreciate you asked it that way, I'm not allowed to speak for the
01:01committee or for anybody else, just myself.
01:04I've been saying for some months that we've had relative steadiness in the job market,
01:11in my view.
01:12The strongest thing in the economy is not AI data center investment.
01:17It has been consumer spending being solid in a kind of a broad-based way in the economy.
01:23But the inflation hasn't been ideal.
01:27It's at least stalled out at kind of 3%.
01:29And in some of the latest measures, the inflation disturbingly high in non-tariff categories like
01:38services.
01:39I think we're still basically in that same spot.
01:44I remain hopeful slash expecting that conditions will improve, that we'll start to see some progress
01:53on inflation, head us back to 2%, and by the end of this year, that we would be in a
01:59situation
01:59that we could commence our march back down to something like the settling point, which is below
02:07where we are today.
02:08But each time we add an uncertainty, I think the job market characterized by low hiring simultaneously
02:19with low layoffs is a weird combination.
02:23And when I talk to business people out in the Midwest, they characterize this because of
02:29the uncertainty.
02:30So as we get more uncertainties, I kind of think the time at which it makes sense to act
02:37keeps getting pushed back.
02:39I always say the first rule of the data dogs is to recognize there's a time for sniffing
02:45and there's a time for walking.
02:47And when there's uncertainty and you're getting conflicting data points, that's the time for
02:55sniffing.
02:55Well, I'm sure everyone out there is very glad to hear you bring back the data dogs.
03:00It's been a while since we've heard that.
03:03Speaking of data dogs, one dog that is barking very loudly right now is oil prices.
03:07But the Fed tends to look through that.
03:10Yes.
03:11I mean, as with any supply side shock, it can lead you in a stagflationary direction, which
03:18is to say the inflation side of the mandate getting worse at the same time, the employment
03:25side of the mandate is getting worse.
03:27And that's always the worst case scenario for the central bank because there's not an obvious
03:32monetary policy answer to a stagflationary shock.
03:38Oil prices going up.
03:40We need to think about, is this a transitory thing that's going to be temporary?
03:45Is this going to be long-lived?
03:47How much, how big will it be?
03:50How long will it last?
03:51And how is it affecting the supply chain before we can really say anything about it?
03:57I would assume that, that you would assume that March is not going to see, March 18th
04:02is not going to see any kind of rate move because there's still too much uncertainty.
04:08Do you think it would have enough data by April to even make a decision one way or another?
04:13You know that I don't like, and you assume that I assume, I don't know.
04:19What would a data dog do?
04:22You know I don't like tying our hands ahead of the meetings.
04:26I want to hear what my colleagues have to say.
04:28I want to get as much information as possible, especially at moments like this where we're
04:33getting conflicting pieces of information.
04:36But you've been there.
04:38It's the biggest table that I've ever seen in my life in that FOMC room.
04:43So there's plenty of room for everything to be on the table at every meeting.
04:49So I'm not going to rule anything out.
04:52We are, from the data that we already have, and other Fed officials have said this, expecting
04:57a bad PCE number.
04:59Are you still thinking of that PCE inflation as residual tariff as opposed to an underlying
05:09fundamental problem with inflation?
05:12Maybe a little of both.
05:14I mean, that's why I've been uncertain and highlighting the inflation numbers.
05:20There have been some encouraging signs in inflation.
05:23Housing inflation has come down a lot and is likely to continue to come down.
05:30We had the run-up of goods inflation.
05:33That, I think a lot of it is tied to tariffs, and we're still trying to sort out, is there
05:38more to come, or is that basically all there was with tariffs, and then it'll go away?
05:43But there's also been a kind of a disturbing persistence of services inflation, which I don't
05:50think you can attribute to tariffs, because the tariff content of the services industry
05:56is not very high.
05:57So we'll have to see what the PCE number says.
06:02The Open Market Committee has said we watch PCE inflation.
06:08That's in our framework review.
06:10That's the best measure that we have of inflation, I think.
06:14And if it comes in hot and it's just goods, I would be more comfortable saying that looks
06:23more like a tariff-driven thing, and that's the optimist case, maybe, that it would prove
06:30transitory.
06:31If it comes in hot but it's heavily on health care, a bunch of service sector industries,
06:38that's a different kettle of fish, and that's a little more, that feels a little more persistent.
06:44A sentiment question.
06:45The sentiment you get, not just from CEOs, but also from just talking to regular people
06:50in your district, you've got a situation where people are seeing gas prices go up and
06:55up and up, and now you have a really bad employment report at a time when people have already said
06:59they're worried about losing their jobs.
07:01Are you concerned that this could tip us into the stagflationary environment?
07:06I don't want to say recession yet, but it could cause people to pull back.
07:11It might cause people to pull back.
07:15The last five to eight years, however, there's been a breaking of the link between consumer
07:24sentiment and actual consumer spending.
07:27For some reasons we understand and some reasons we don't understand.
07:31So if you saw deterioration of consumer sentiment as, say, gas prices go up, which historically
07:39when gas prices go up, consumer sentiment goes down, if that did not translate into a slowing
07:45of consumer spending, I would be much less nervous.
07:49As I've highlighted, in 2025, the strongest thing that we have going for us was not AI data
07:56center investment.
07:58Yeah, that was great.
07:59But the main thing driving growth was a strong, stable consumer, broad based spending, which
08:08drove growth in the country.
08:10And that still continues until it doesn't.
08:14So if sentiment deteriorated and there's a lot of concern as I'm going around the Midwest and
08:23the Chicago Fed District, a lot of expression of concern about affordability, about costs on
08:31both the business side and the consumer side.
08:33If people begin to be nervous about their employment, historically, that tends to show up as they're
08:43trying to build a little precautionary buffer so the savings rate would start to rise.
08:50That'd be a thing to watch out for.
08:52Let's end on a little bit of a positive note here.
08:54Productivity down from the third quarter, but still 2.8% for the fourth quarter.
08:59That's got to be something that makes you feel a little bit better.
09:03Yeah, all of our inner economists are getting a little bit of a warm glow.
09:08Productivity growth is what makes us rich.
09:11Incomes can go up.
09:12Wages can grow faster without inflation if productivity growth is going to remain high like this.
09:18So I don't think that the adoption of AI has been big enough to explain that number completely.
09:30So I think there actually might be even some more running room to go with the productivity.
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