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Well, thank you very much. We'd like to welcome all our viewers and listeners around the world to Bloomberg Radio and Television, and we'd like to welcome Austin Goolsby. Yeah, thank you for having Bloomberg Radio and Television. I want to start with the next meeting and the meetings beyond, because that's the general focus of the folks on trading desks.
Coming out of the last two years, the focus seemed to be on the unemployment rate, on the labor market, and cutting rates to get ahead of a problem with the labor market. But listening to you this morning, it sounds like you're more concerned about inflation, that inflation may have become the primary risk.
Yeah, I would say in my head in twenty three and twenty four since I've been on the FED, inflation's been it has never gone away as a central focus, and the labor market is deteriorating.
It comes back in a major way.
But I'm a little more concerned about inflation right now because I think the job market is pretty steady, I think growth is pretty steady. I think there's some promising stuff in the inflation reports, but there's also some warning signs.
So as I say I'm not hawkish about rates, I'm pretty optimistic that we can get rates down further multiple cuts in twenty twenty six, as long as we see the progress on inflation that forecasters have been forecasting that it's supposed to start coming down, and I just want us to see some progress on that front and.
Not get ahead of ourselves.
Well, you talk about that a little bit, and it's a question I asked J Powell once is it seems like every time you put out a summary of economic projections that outlooked by the various members of the Open Market Committee, the two percent target gets hit two years from now. The next one it's two years from now exactly.
So what goes wrong, That's a lot of things can go wrong.
In this case.
What I want to make sure is not going wrong is that we need inflation not to be persistent when the part of inflation that has come from tariffs is supposed to go away, is supposed to be transitory, and when you see things like the forecasts say inflation's going to peak out and then start falling by the end
of twenty twenty five, and then that moves the goalpost. Well, maybe it'll be the first quarter of twenty six, and now they're saying, well, maybe it will be the second quarter of twenty six.
That's not a great sign. We need to see.
What we should see, especially on the good side. If the tariff inflation is transitory, it's supposed to start going away. And as soon as we start getting some evidence that we're back on the path to two percent, as I say, I think rates can still keep going down. And if you look at the at the SEP dot plot, a large group of the committee thinks that where rates will eventually settle is still well below where we are today.
It's just we must get inflation down.
From this three percent level that we've been stalled out at for now a year more.
Well, now you've got this whole new tariff uncertainty from the Supreme Court. President's going to impose when you started today, a ten percent tariff universally brings down the tariff rates some, but they say they're going to use other means to get the tariff rates back up to about where they were. So now you'll have this dip perhaps in inflation, and then it could go back out again. So you said you want to see inflation going down. Does that get
pushed out? Does it become later in this year when you can even think about things.
I think when I'm out in the seventh District in the Midwest talking to folks, they talk a lot about uncertainty, policy uncertainties and geopolitical uncertainties. The thing to remember about the terriffs, even if the tariffs stay exactly as they were, just in a different form, the inflation impact is supposed to go away. So if the rates are lower than what they were before, that should be that should make it even more true that we should see the inflation
going down. I think that the policy uncertainty we're seeing.
More on the labor side.
I think the low hiring, low firing environment is what you would expect when there's a lot of uncertainty. That's not really what the beginning of a recession looks like.
Low hiring with high layoffs, that's what the beginning of a recession looks like.
For both of those to be low is a bit of a weird duck, and I think is explained by a lot of we want to wait and see what's going to happen, and so if you have question marks coming from the Supreme Court, coming from other policy responses, I think you're likely to see continuation of that low hiring, low firing environment.
Well, what are CEOs telling you they want to see before they would be willing to hire again.
What they tend to say is, we want to know what the rules of the road are going to be, And right now we don't know what the rules of the road are going to be, and there could be very significant changes. And look, I'm sympathetic with that the rules are moving around. If you're in a business like the auto industry. The Chicago Fed District has by far the most auto production in the United States. It's a
global supply chain for the auto industries. They're very amped up about what will be the treatment of parts, components, supplies that they used to make the cars. So far, they were pleasantly surprised that anything USMCA compliant was kind of exempted. Now, if the rumors are to be true that whatever they might renegotiate the USMCA or would Canada be in the USMCA, of course, that's what they're going
to express. Uncertainty about things like that, and it's going to affect their decisions in short run.
Over the long run, as I say.
I still think the American consumer has been pretty solid. We've got a steady job market. If we'd make progress on inflation, I think rates are trending now.
Well, we've seen productivity rise a little bit in the last couple of months. When you look at what the companies are telling you, are they saying, maybe we don't need to hire as many people because we're getting this job done, We're keeping up with orders.
Some I mean, the economy is extremely diverse, and the answer to the question of what are the labor market prospects and do they need to hire depends very much on the industry. If you talk to software companies, a lot of them are saying, hey, the AI technologies, there's some uncertainty, but the only uncertainty is should we not higher or should we actually let people go. But if you look in the healthcare sector, it's a booming sector.
Employment continues to expand in that sector, and you don't hear some of those So the answer that depends a lot on who you're talking to.
Well, productivity is going to be a big issue for the FED coming up with a new chairman coming in Kevin Warsh, who's pretty much weed to the idea that AI is going to create a lot of additional productivity which will bring inflation down. Now, having talked to you, I know that you're not as sure about that.
Yeah, look, I hope that that is what happens.
Let's remember, productivity growth is the thing that makes us rich. So if we get high productivity growth, incomes are going to go up. There are a balance of things that happen when productivity goes up, though that we should remember. It can be deflationary. At the same time, it can still and you have seen it. It can stimulate a lot of investment, and in the short run, people counting on future productivity growth can overheat the economy just in
the near term. And as you go around the country you hear a lot of discussion about data center investment demand, using up all the HVAC people, buying up all the electrical equipment, using up computer chips, and in a way making prices higher for the rest of the economy. We just got to think about some of those issues. What are the implications of high productivity growth? But overall, if that is Kevin Walsh's position, I've known them a long time.
I respect him a great deal. I mostly agree with him.
Now in March, you have to come up with a new economic projections, a set of forecasts for where you think the economy will go. You're probably going to be waiting a while till you have to actually put those on paper. But let me ask this, how much confidence are you going to have given everything that's going on right now in the numbers you put down.
Do you want to view that as much confidence as we ever have or it's not very much confidence?
Both of those can be true.
There's a lot of uncertainty, and we have to make decisions with the data we have, So I take my own views and.
That of my staff with a heavy.
Grain of salt. When things are changing a lot. We've seen in the last three years, unexpected, unprecedented shocks hitting us.
I'm sure we'll get some more in twenty six, But.
As I say, I'm still optimistic that we're basically along with solid growth a steady labor market. We've got some encouraging and some discouraging signs coming on the inflation side. If we could just get some improvement, I feel like we could still get back on the golden path that we were on before.
Another Kevin Warsh idea is that the FED should go back to a scarce reserves way of managing monetary policy. Would you support that.
We should constantly be evaluating as a body what we're doing and the efficacy of doing that. We switched out of that scarce reserves based regime to what we do now because in crisis there were some holes in a scarce reserves regime. It's possible we should study it, we should contemplate that if we're going to seriously think about doing that, we probably do want to revisit some of the logic of how we got to where we are now and moved away from that.
Coming up as J Powle's in theory he'll leave the chairmanship, he could stay on the board. A lot of people looked at the last decision and noted that in January you always choose the chairman for the rest of the year for the Open Market Committee, and that's what you did this time, instead of as has been done in the past, saying chairman until successor is in place. If Kevin Walsh is not confirmed by then, would you support J Powell remaining as chairman of the Open Market Committee.
I don't know.
It sounds like you have a lot more expertise on the language of these decisions. I've said unapologetically, I think Jay Pole's a first ballot Hall of Fame FED chair and I'm a big supporter of his.
I don't know what the what the rules are when people's terms.
Expire as chair, are they allowed to stay on if they are I'm a I'm a big Jay Pali support.
Well.
J Paul can stay on as a governor, certainly, and would you like to see him do that?
I don't know. I like being him being around for sure.
So you're not gonna have you talked to him about it at all.
I haven't talked to him about that, And it's not it's not my place, you know. The rules of the thing are we speak only for ourselves. We're not supposed to talk about what anybody else's thoughts are, opinions, or speak for the committee.
So I don't really have.
It, okay, I think to add on it, last question, all politics are local for the Chicago district. This is a message for you. Do you support the Bears going to Indiana?
Look at the Chicago Bears wherever they build a stadium, they better be called the Chicago Bears.
But where the public financing? That's out of the FEDS, that's out of the fed's length.
Saved the toughest question for exactly Austin Golby, thank you very much for the president of the Chicago Fed.