On Bloomberg Television and Radio. I am Shanallie Bassik. Joining us now is Bloomberg's Michael McKee and Chicago Fed President Austin Goolesby. Mike Geta started.
Thank you chanelling, and thank you to everybody who is watching us around the world, including Austin Goolsby joining us from Chicago. Thank you very much, mister President. Hiring drop precipitously, the unemployment rate shoots up more than anticipated. Everyone wants to know, did the Fed make a mistake by not cutting rates on Wednesday?
Well, look, you know, I'm not going to get myself in trouble and talk about what people's thinking are from the meeting. You're going to have to wait for the transcript to come out to see what was on people's mind. I've been saying to you for a long time and publicly that we'd never want to overreact to any one
month's numbers. And if you back up to the last half of twenty twenty three, you know that the market said maybe there will be seven cuts for the year, and then when a month would come in, then that seven would drop to three. Then there was a group saying maybe there will be an increase in rates. The job of the central bank is to figure out the through line and to move in a steady way. I've been warning that we are tight. We are restrictive. The real Fed funds rate is as high as it's been
in decades, and as inflation falls, that gets tighter. If we stay restrictive for too long, we're going to have to think about the employment side of the mandate. And if you look here, if you take this, if you take this summary the statement of economic projections in the SAP, the neutral rate of inflation, the long term rate of inflation, and unemployment. Say that people think full employment is about
four point one percent. So if unemployment is going to go up higher than the neutral rate, that is exactly the kind of pinching on the other side of the mandate that the law says the Fed has to think about and respond to.
Well, you've been talking about a rate cut, yet you voted to keep rates unchanged. Why did you do that? And now do you think maybe you are behind the curve?
Well, look like I say, I'm not going to get into talking about the secret discussion. You got to wait for the minutes and the transcript to come out. I was a seat filler at the OSCARS that that's really Cleveland's seat. I was there for one meeting. The committee acts on the through line of the data, and the through line of the data, you should not change what you think. The through line is based on one month's number and the overall. You know that I believe that
we are restrictive. I think that I've been saying for months that what we wanted to see was improvement on inflation and especially improvement in the components like housing and services. And we've been seeing that, and that the longer we were restrictive, we're going to have to start thinking about the employment side of the MANDID.
Well, you've heard what the banks, economists and traders are saying today. Should the next move in September be a fifty basis point cut? And what do you think about JP Morgan proposing from a risk management perspective, there's a strong case to act before September eighteenth.
Look, Paul Volger, my old mentor and friend, you saw is our job is to act and their job is to react. And let's not get the order mixed up on that. I fully understand why markets want to jump if they get one scrap of information and they see one thing, they want to conclude a trend out of one data point, and I would just caution us. If we had acted at the end of twenty twenty three based on a couple of observations, then the same people would have said, ah, but look, inflation went back up
in the first quarter, so that was a mistake. I think the most important thing is to look at the through line. What will determine the action is if we don't want to tie our hands now, we're going to get a lot of information between now and the next meeting, and what will determine the size or if there is action at all, will be the conditions, And that's the way it should be. That's as I always say the data dogs, there's a time for walking, there's a time
for sniffing. The sniffing time is when there's a lot of uncertainty and you don't know what's what. Once you get the through line, that's the time for walking.
What exactly would it take to see a cut before that September meeting.
I'm not going to get in a speculative bit about that. The FMC acts in a consensus manner. We have deliberation and debate, and we vote on things, and I hope I try to bring the through line mentality of you don't take one month's number, look at what the trends are. And to me, the trends show inflation coming down across the board multiple months in a row. They show the labor market cooling. What we want is for the labor market to get into good balance, sort of the full
employment natural rate. If we're not stopping at that, and then we're not neutral and we're going to have to be thinking about the employment side of the mandate.
It's not just about the next cut, it's also about the path forward from here. For the people that think that you might get multiple even multiple half point right cuts through September through November through December, what do you tell them in terms of what you expect for the entirety of the path going into next year.
Look, you know, I don't like tie in our hands even for the next meeting, so I certainly don't want to commit ourselves to what going to be the rate
path five to seven meetings from now. With all of that said, just look at the statement of economic projections and you can see that as a committee of the individuals believe have believed that the conditions will be appropriate to have multiple rate cuts with the unemployment getting into better balance and with inflation coming down to target, but even at a run rate that's a little higher than what we've seen in the last couple of months. So
it's not any secret. The Fed's been pretty vocal about here's what the reaction function is and expecting. As is historically true, when conditions weren't a cut, they tend not to be one individual cut. The SEP shows that the median dot of the dot plot has multiple cuts over the next year.
How weak is the US economy overall? I want to point out something that your Governor JB. Pritsker, the governor of Illinois, said just two days ago. Interest rates are holding companies back from making the investments that are necessary. All these companies are companies that are on a generally upward trajectory over the last decade, but are having a hard time in the moment because of some of the challenges the Federal Reserve has brought.
I mean, in a way that's a description of monetary policy that sounds like he's saying policy is restrictive, and I agree with them. When the real federal funds rate, that is the Fed funds rate minus inflation, that's as high as it's been in a very long time. That's the highest it's been over the cycle. As inflation comes down. We set that rate a year ago at a time when conditions were very different than they are now. And you should be tightening by choice, not by accident. You
shouldn't back yourself into tightening. What we need to do is take the through line on inflation and on employment, and that's what should determine our policy. I don't want to argue about the words how good or how weak is the economy? Well, the numbers are the numbers. We've seen GDP growing around trend. We had one weaker than expected GDP growth number at the beginning of the year. Then we had a stronger than expected in the second quarter,
and so we were growing, but it's slowing down. The strongest thing in the economy has been the job market. The weakest thing in the economy has been the inflation. Both of those are converging back to let's call it normal or what it was pre pandemic. And our absolute goal now is we want to settle at something like full employment, not blow through normal and deteriorate.
Well, I think the major thing that people want to know going forward is now you mentioned all the data coming up, what are you going to be looking at? What is going to what are you going to base your interest rate decisions on?
I mean, the dual mandate comes to us by law. The law says the primary things we got to look at are inflation and the job market and are we maximizing employment? So those are going to be the big two kahunahs as we go forward. But it is still an economy with cross currents, where you've got some things that remain quite strong by historical terms and other things
that have deteriorated. So if you look at credit card delinquencies or small business defaults, those have been rising and they have moved into what I call warning sign stage. So I'm going to be looking at what Chair Powell calls the totality of the data, not just the monthly PCE inflation and jobs reports, but the PCE inflation and the jobs reports are the big two for sure by law, we do have to.
Leave it there. Wish we had more time, of course, that is Bloomberg's Michael McKee and Chicago Fed President Austin Goolsby, off the heels of a very highly watched and surprising jobs report. We thank you both very much for your time