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Welcome back to Bloomberg Radio and television viewers and listeners around the world. Our guests this morning. Now Austin gools will be the president of the Chicago Federal Reserve. And of course everybody wants to know what the Fed's going to do. The Fed's worried about jobs, and today you had a number to worry about.
He has a tough mess on the jobs report today. You never want to over index on one month's report, and I've been consistently saying, well, it's not index on total payroll employment anyway, because a lot of stuff is going on.
With immigration, with population growth.
That said, you saw the unemployment rate inching up, and it's one month is not a trend, but it's not a good month. If you got several months like that, you would be that'd be a concerning spot for the labor market.
Well, what's your feeling about what the Open Market Committee going to do? I know you've been waiting to see data. Chris Waller has been saying he's still in favor of cutting, as is Steven Myron. Where do you come down now?
Well, as you know, and I appreciate you asked it that way. I'm not allowed to speak for the committee or for anybody else.
Just myself.
I've been saying for some months that we've had relative steadiness in the job market. In my view, the strongest thing in the economy is not AI data center investment, has been consumer spending being solid in a kind of a broad based way in the economy. But the inflation hasn't been ideal. It's at least stalled out at kind of three percent, and some of the latest measures the inflation disturbingly high in non tear offf categories like services.
I think we're still basically in that same spot. I remain old full slash, expecting that conditions will improve, that will start to see some progress on inflation, head us back to two percent, and by the end of this year that we would be in a situation that we could commence our march back down to something like the settling point, which is below where we are today, but each time we add an uncertainty. I think the job market characterized by low hiring simultaneously with low layoffs is
a weird combination. And when I talk to business people out in the Midwest, they characterize as because of the uncertainty. So as we get more uncertainties, I kind of think the time at which it makes sense to act keeps getting pushed back. I always say the first rule of the data dogs is to recognize there's a time for sniffing, and there's a time for walking. And when there's uncertainty and you're getting conflicting data points, that's the time for sniffin.
I'm sure everyone out there is very glad to hear you bring back the data dogs. It's been a while since we've heard that. Speaking of data dogs, one dog that is marking very loudly right now is oil prices.
But the Fed tends to look through that.
Yes, I mean, as with any supply side shock, it can lead in a stagflationary direction, which is to say, the inflation side of the mandate getting worse at the same time the employment.
Side of the mandate is getting worse.
And that's always the worst case scenario for the central bank. Because there's not an obvious monetary policy answer to a stagflationary shock oil prices going up, we need to think about is this a transitory thing that's going to be temporary?
Is this going to be.
Long lived, how much, how big will it be, how long will it last, and how is it affecting the supply chain?
Before we can really say anything about it.
I would assume that you would assume that March is not going to see March eighteenth is not going to see any kind of rate move because there's still too much uncertainty. Do you think it would have enough data by April to even make a decision one way or another.
You know that I don't like, and you assume that I assume I don't.
Know what you know.
I don't like tying our hands ahead of the meetings. I want to hear what my colleagues have to say. I want to get as much information as possible, especially at moments like this where we're getting conflicting pieces of information.
But you've been there.
It's the biggest table that I've ever seen in my life in that FOBC room. So there's plenty of room for everything to be on the table at every meeting. So I'm not going to rule anything out.
We are from the data that we already have, and other FED officials have said this, expecting a bad PCE number. Are you still thinking of that PCEE inflation as residual tariff as opposed to an underlying fundamental problem with inflation.
Maybe a little of both.
I mean, that's why I've been uncertain and highlighting the inflation numbers. There's been some encouraging science in inflation. Housing inflation has come down a lot and is likely to continue to come down. We had the run up of goods inflation that I think a lot of it is tied to tariffs, and we're still trying to sort out is there more to come or is that basically all there.
Was with tariffs and then it'll go away. But there's also been a.
Kind of a disturbing persistence of services inflation, which I don't think you can attribute to tariffs because the tariff content of the services industry is not very high.
So we'll have to see what the PCE number says.
The Open Market Committee has said we watch PCE inflation.
That's in our framework review.
That's the best measure that we have of inflation, I think, And if it comes in hot and it's just goods, I would be more comfortable saying that looks more like a tariff driven thing. And that's the optimist case. Maybe that it would prove transitory if it comes in hot, but it's heavily on healthcare, a bunch of service sector industries. That's a different kettle of fish, and that's a little more that feels a little more persistent.
The sentiment question. The sentiment you can not just from CEOs, but also from just talking to regular people in your district. You've got a situation where people are seeing gas prices go up and up and up, and now you have a really bad employment report at a time when people have already said they're worried about losing their jobs. Are you concerned that this could tip us into the stagflationary environment.
I don't want to say recession.
Yet, but it could cause people to pull back.
It might cause people to pull back.
The last five to eight years, however, there's been a breaking of the link between consumer sentiment and actual consumer spending for some reasons we understand and some reasons we don't understand. So if you saw a deterioration of consumer sentiment as say, gas prices go up, which historically when gas prices go up, consumer sentiment goes down, if that did not translate into a slowing of concer who we're spending,
I would be much less nervous. As I've highlighted in twenty twenty five, the strongest thing that we have going for us was not AI data center investment.
Yeah, that was great, but the main thing.
Driving growth was a strong, stable consumer, broad based spending, which drove growth in the country. And that still continues until it doesn't. So if sentiment deteriorated, and there's a lot of concern as I'm going around the Midwest and the Chicago Fed District, a lot of expression of concern about affordability, about costs on both the business side and
the consumer side. If people begin to be nervous about their employment, Historically that tends to show up as they're trying to build a little precautionary buffer, so the savings rate would start to rise.
That'd be a thing to watch out.
Let's end on a little bit of a positive note here. Productivity down from the third quarter, but still two point eight percent for the fourth quarter. That's got to be something that makes you feel a little bit.
Yeah, all of our inner economists are getting a little bit of a warm glow. Productivity growth is what makes us rich. Incomes can go up, wages can grow faster without inflation if productivity growth is going to remain highlight this so I don't think that the adoption of AI has been big enough to explain that number completely. So I think there actually might be even some more running room to go with the productivity.
Austin Goolsby, thank you very much. We'll have you back to have a name the Data Dogs contest right, President of the Chicago Fan