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Federal Reserve Baker Boston President Susan Collins said earlier on Bloomberg TV that a December interest rate cut remains on the table, emphasized in the Central Bank's decision will be guided by incoming data. For more on the path of rates and how another FED president is thinking about the environment. Right now, we had on over to Bloomberg News International Economics and Policy correspondent Michael McKee, who's standing by with Chicago Fed President Austin gooles Hey, Mike.
Good afternoon, Tim, and good afternoon to everybody watching around the world on Bloomberg Television and radio through the miracle of modern telecommunications. I'm in Boston, where I did talk with Susan Collins earlier today in Austin is in Chicago where he is making some of the media rounds. Austin, thanks for joining us today. You saw to get you out here to Chicago exactly. But you just heard them
say that the markets are down today. It's a little bit of disappointment because there's a feeling that with reasonably strong inflation and kind of strong economy and mixed news on the labor markets that the FED might take a cent a pause, take a pause in December. Do you want to make everybody happy and tell them that it's not going to happen.
Look, you know my thing is A. I'm only allowed to speak for myself, not for anybody else on the committee or for the committee as a whole. And B. I don't like tie in our hands. We're going to still get a lot of information and data before the next meeting when we have to decide that, and we're going to get to discuss amongst ourselves, and I'm going to hear the views of other folks on the committee.
I know the market's business model is to react immediately and in the most extreme terms to rumors, and that's not the FED timetable. What we need to do as a central bank, I think is focus on the through line. And the through line has been substantial decrease in the inflation rate from its highs, the job market cooling to something like full employment, where if it stayed right where it was, that would be that would be a perfectly fine,
steady state outcome. And to do that and hold it in that kind of position, I think we're going to be looking at rates coming down over the next year along the lines of what the dot plot said. So I still think we have a long way to go down with rates. How fast that happens. You saw a chair pale saying that there's nothing that says it has
to be immediate. And I'm comfortable personally that as there's some dispute about what is the neutral rate at which we're going to settle down, if there's disagreement about that, that we don't just charge right to it, that we slow the pace as we get toward it. But again, this is playing out over a longer period.
I think, Well, everybody came out of the last meeting, everybody on Wall Street came out of the last meeting figuring that the December meeting was a sure thing for another rate cut. Have you seen anything in the data we got this past week that seems to have upset people on Wall Street that would cause you to think there should be a pause or are you still fairly confident that it's a necessary and a possible move.
Well, the second part of that, I always think you've seen the table. It's a huge table. Everything's always on the table. But there's no there are no guarantees, and there shouldn't be We should be watching the conditions. I'm not going to try to put my head It's how dangerous is it to try to put your head into what the market is thinking. I've just got to focus on what I'm thinking. We've seen what is Austin thinking the job market conflicting crosswinds, let's call it. We had
a disappointing month. We had two stronger than expected months, then we had a hurricane and strike noise affected month that was well below what was expected. We just need to see through that and try to figure out where we are in the job market. A lot of the other measures, if you take the unemployment rate, if you take some of the ratios like vacancies to the number of unemployed workers, they're pointing to stabilization at something like
full employment. That would be great. The inflation numbers have to keep improving. I believe that we have set out a path to two percent. If we started to see reversal of that, then we're going to be back into the phase where we got to figure out is this a bump in the road like it was in January of this year, or is this through line continuing and that what you just think that a lot changed in the last couple weeks on.
That is that what you're saying now with inflation as a bump in the road, the CPI PPI and what the nerds have figured out for PC coming.
Up, Well the nerd I love those nerds. You a bunch of those nerds work at Chicago FED. It's a little higher, you know, on a monthly basis than the target. If that was extended, that's too high. We're not the inflation target's two percent. We're going to get inflation at two percent. If it's coming in at three percent, it has to come down. Now that said, absolutely, don't make too much out of any one month's number, especially on inflation.
There's a lot of volatility of that series, and we've had many months in a row that the through line on inflation, in my view is it's come way down and it's going to keep coming down. I have some confidence that if you break out the components, you're starting to finally see progress. On the housing side. We've had a bit of a bump slash blip where goods inflation has gone back up above zero, where pre COVID it
was mild deflation. So I still think you can see some progress on that, and we'll keep an eye on the services.
This morning, you re Quota is saying by this time next year, we'll see interest rates far below where they are today. What does far below mean? Is your view of neutral significantly lower than we are now.
It's significantly lower than where we are now, definitely. I mean, I don't think it's a secret. If you take the dot plot SEPs it looked like a pretty wide consensus among the members of the committee where they're asked individually. We don't debate those points that almost everyone views that the long run settling rate of interest rates is somewhere
well below where it is today. So that's why I say, as long as we're staying on this path that we've been on, I view that interest rates need to come down a fair amount over the next twelve to eighteen months.
But given the growth rate Atlanta fed GDP now out today two point six percent, and what we've seen the rest of this year, it's been stronger than anticipated, inflation's a little higher than anticipated, unemployment a little lower than anticipated. Is it worth keeping your foot on the brake a little longer to try to ensure you get to that target you want.
I mean, it's for sure keeping an eye on those conditions. If you thought the economy is overheating and that we're getting off the through line of improvement and going to an overheated posture, the FED has to we committed we're
going to get inflation back to two percent now. I think all the question mark to remember on all of this is we've had very robust productivity growth now for a year plus, and if productivity growth is higher than trend as it has been, and that continues, then you got to be a little careful over indexing on the growth rate of GDP as an indicator of whether the economy is overheating, because if productivity is rising, you can have faster growth without generating more inflation.
I know there's some topics that FED officials don't like to talk about, including the state of the Chicago Bears these days.
But you have a new coming that's cold. You're not even here, You're over there in Boston saying this. I'm going to get you, Mike.
We have a new administration coming in and obviously it's going to bring in some new fiscal programs. I realize you don't have details, you can't model them. You're not sure, But could you basically say that whatever kind of SEP we get in December, the Summary of Economic Projections, whatever, at a dot plot, we shouldn't put too much emphasis on it because it could easily change when the new administration takes over.
Maybe I don't totally know how to answer that. I thought Chair Powell at the press conference had a lovely phrase that when it comes to policy, we don't speculate. It's not our job to try to make predictions about who's going to win elections or what are they going to do. Our job is to follow the dual mandate, maximize employment, stabilize prices. If policies get enacted that we think are going to affect our mandate, of course we
react to those conditions just like every other conditions. But we're not in the elections business or the anticipate anticipation of policy business of that form.
Well, you did serve in an administration as chairman of the Council of Economic Advisors, and now you work for the FED. From your what should be the relationship between an executive administration and the central Bank?
Look, I said before I ever was at the FED that FED independence is important, and that's a close to unanimously held view among economists because the simple reason just look around the world and look at times in the United States when a sitting administration can bully the FED or tell the FED what to do or the Central Bank what to do on interest rates. The outcomes are worse. Inflation is higher, the economic growth is lower. And that's
why everybody thinks that the fed's independence is important. And it's an interesting observation. I was the chair of the Council of Economic Advisors. There are many previous people that worked at the Council of Economic Advisors or in high level treasury roles who work in the FED because they have public sector experience. But the question of FED independence, and it's embodied in the Federal Reserve Act. They try to set it up to be as insulated from elections
as possible. It's not on the presidential election timetable for the terms. There's a composition of the FOMC, some of which are political appointees, some of which are from reserve banks around the country that are not chosen through a political process. And that's how it should be. If you want to do the best monetary policy.
I think, I guess I'm going to ask a question that I sort of asked before, but in a different way. Back a couple of years ago, Leyel brainer put forth the proposition that maybe you want to have a slow period of policy, taking breaks in between meetings where you might raise or lower interest rates because you have to assess where the economy is, because we don't know what's going to happen with fiscal policy, and because we're getting
a little bit of extra strength in the economy. Do you think that that is probably a good idea, that maybe we don't price in regular rate cuts, that you do take some breaks in between.
Well, first, I thought you were about to say. I thought you were going to quote me something you asked me two years ago, and I was going to say, I don't remember that, But so you asked Vice Chair Brainerd. The Fed's decision making is not based on the results of elections. Our decision is based on the dual mandate and the assessment of the economic conditions and the outlook. If the outlook is changing, then we can balance and think through what that means for the FED. But the
part of the question that I object to. It's not speculating about fiscal policy. That's not the Fed's role. We're the Midwest. You tell us the way, and we tell you what jacket we're going to put on. But that goes into the economic conditions, and what we do is
watch economic conditions. I'm perfectly comfortable personally with the idea that if you look at the dot plot there is disagreement about what will the ultimate settling rate be of our star if you want to call it that, or what would it mean to stop being restrictive and start
being neutral? And if we're getting closer to the disagreement point, I can understand why you would want to slow down a little bit to try to gauge is this neutral or are we still restrictive because monetary policy has a lag in its impact, and in my view, that's the way we should be managing this question of how slow or how fast to do it.
Well, let me ask you one last question, and that is you mentioned you're in the Midwest. You can tell us what kind of coat you're wearing, probably the same as us today it's colden Boston. But what are CEOs and consumers telling you out there? I know you're not just looking at past data. When you make your decisions, you try to incorporate current views of the economy. So what are the views of the people in your district?
Well, out here in the heartland, you know, in the Reserve banks, we spend a lot of time going and talking to business leaders and community leaders and consumers and getting the more up to date measures than just what come out in official data. A lot of the discussion, and we have a special focus on autos and manufacturing here in the seventh district because we have the most
auto production of all the districts by far. Most of the business community are reporting back steady as she goes kind of a report and that the job market it's not easy to find people, but it's not the kind of labor shortage labor scarcity mentality that they had coming
out of peak pandemic. On the inflation side, a lot of discussion, really complaints on the part of the business people that they cannot raise prices as much as they did before, they can't pass on cost increases, fear that there might be some cost increases coming, complications in the supply chain, etc. And that now consumers would not stand
for passing those costs on. So all of those don't tell a story to me that's that different from what the data have been showing, which is this steady progress on the inflation front, stabilization on employment, and steady as she goes. Let's try to bring the interest rate down into something like neutral and be a little less restrictive.
You've been in Chicago for a long time, but now you're at the Chicago Fed, which encompasses the city of Detroit. If the Lions went out, that good enough.
For you, that's good enough for me. We got a branch in Detroit. We got a bomb dog in Detroit whose side lights as the bomb dog at the Detroit Lions Stadium. So we we're all lions. That'd be okay, almost as good as the bears.
Austin Gilsby, the president of the Chicago Fed and the owner of a bomb dog in Detroit, thanks for joining us today here on Bloomberg, and I'll send it back to you guys in New York.
Thanks so much. Michael McKee, Bombdogs and the Dot plot. Michael McKee, Blooberg News International Economic New Policy correspondent out there in Boston, though speaking with Austin Goulsby on Chicago, the president of the Chicago Fed