Chicago Fed president explains “the hardest thing that a central bank has to do”
Chicago Fed president explains “the hardest thing that a central bank has to do”
The Federal Reserve has been in the national spotlight for the last few years as people wait to see if the central bank can finish threading the needle by bringing inflation down to its 2% target, keeping employment stable and managing a soft landing by avoiding a recession.
There has been plenty of data over the last few months showing that the Federal Reserve is on the right path to achieving those goals. The consumer price index, however, reported Thursday that the annual inflation rate in September was 2.4%, near the Federal Reserve’s goal of 2%, but cooling more slowly than expected.
Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, joined “Marketplace’s” Kai Ryssdal to talk about timing Fed decisions in moments of transition, if COVID is still affecting the economy and why he’s a “data dog.” An edited transcript of their conversation is below.
Kai Ryssdal: So we will, of course, talk data with a data dog. I want to talk, though, not about this morning’s CPI. I want about to talk about the jobs number that came out last Friday, 254,000. First I want your gut reaction when you saw that number.
Austan Goolsbee: I thought it was superb. You cannot complain with big jobs numbers and the unemployment rate coming down a little and staying in a spot that we basically think of as full employment.
Ryssdal: Yes to all that, but is there nothing in you that says, “Oh, man, we’re cutting rates and the unemployment, the jobs numbers are going up and it’s looking better and … ” No?
Goolsbee: Some. But you know I’m in the data dogs. And the thing about the data dogs [is that they] don’t respond to one month, you know that. It was literally 60 days previous that we got a disappointing jobs number, and then a bunch of people in the market ran out and said, “Oh, this means that we need to cut 150 basis points.” And then you get one number that’s better than expected, and then people say, “It’s an emergency! You need to raise rates!” Taking the long view is the right thing to do. There’s a market timetable, and I understand why the market timetable is what it is. They’re going to glean market gyrations from every little zig and zag. But the central bank I don’t think can do that. We got to take the through line. And I think the through line so far is pretty clear: inflation way down. The job market overall has been cooling from overly heated to something like full employment, and we just wanted to stop right there.
Ryssdal: All right, let’s talk about some of the longer-trend items. Last time we had you on the program, which was March, we talked about housing as being a particular thing. You were looking at inflation being sticky there. The report this morning, it’s not like housing prices broke, but they certainly moderated. You must take heart from that.
Goolsbee: Yeah, but again, it’s just one month. If we got several months —
Ryssdal: Is there anything that’s going to make you say yes? Oh, my goodness.
Goolsbee: Look, that was a good month for housing inflation, what we got today, but it followed last month was a bad month for housing inflation. So we just got to take several months before making these averages. We are making progress on housing. It has been heartening. It hasn’t been as fast as I wanted it back in March, but we have made progress overall, definitely.
Ryssdal: I can’t even get this question out right. This is going to sound flip, and I do not mean it to be. You are data dependent. You call yourself a data dog. I call you a data dog. I call you a data dog now, on this program, which I’ve never done with anybody. [Federal Reserve Chair Jerome] Powell talks about more data all the time. It does seem like there’s — and I truly, I don’t mean to be flip — but it seems like there’s nothing that’s going to satisfy you guys. It’s always “more data, more data, more data.”
Goolsbee: What’s wrong with us? You know, yes, it is always “more data,” but we have to make the decisions, as you say, so we get the data that we have, we have to make — it’s not just backward looking. We also got to make forecasts and think about where things are headed. And part of that we supplement with a bunch of interaction with business leaders and CEOs and civic leaders and everything that goes into the Beige Book. At the end of the day, that’s also why we meet every six weeks, is so that we hopefully don’t get too far out over the skis or get too far behind the curve, or however you want to think of it. We just got to keep revisiting this. And it’s relevant in the Fed world, where I always say the hardest thing that a central bank has to do is get the timing right when there are moments of transition. And we’re in a moment of transition from an environment where we had overwhelming focus on getting down the inflation part of the mandate to a more normal, balanced environment where we got to think about inflation, and we got to think about employment and how the real economy is doing, and we got to think about the trade-offs and balance those things out. And that’s going to mean a lot of close calls. So we’re going to have meetings where it’s, should it be zero [basis points], or should it be 25 should it be 25 should it be 50? And for whatever reason, we don’t, we don’t have fractional cuts. We can’t do it 37.5 and a 12.5.
Ryssdal: You could if you want. This is America.
Goolsbee: We could if we wanted. We could shift — it’s like the old Nasdaq, you know, one-sixteenth. So, the thing is, in an environment like that, we go with the data we have, and then we meet again in six weeks, and we try to figure out and keep ourselves on the path. And that’s the way it should be. That’s how it should be.
Ryssdal: Let me ask you about the moment of transition. Yes, we are in a moment of transition with the labor market and inflation and all of that. I wonder how much you think we’re still in a moment of transition out of the pandemic and how much that’s still affecting this economy.
Goolsbee: I still think it’s affecting some and, of course, that was the thing that made all of our historical monetary policy lessons, at least not superhelpful to understand the business cycle. We had a downturn that wasn’t driven by cyclical industries at all. It was driven by people couldn’t spend money on services. As we’ve come out of that, the service sector rebound is not even especially monetary-policy and interest-rate sensitive. So we’ve we’ve had to think through these issues of: Is monetary policy less effective than it is at normal times, or is it just more delayed than it is at normal times? You got a much higher share of mortgage holders have a 30-year fixed mortgage than they did in the past. So when we change the interest rates and it flows through into mortgages, the the direct impact in the here and now is not as big as as it was before. I still think there’s some of COVID coming through, but I feel like in most of these areas, the supply chain, some of the labor force participation and the healing of many of the supply shocks that that were as damaging, I feel like we’re mostly back to normal. And the fact that inflation’s around the 2% target of coming in and unemployment is at the level that we always said was kind of steady state full employment makes me think our job now is to try to hold the picture where it is.
Ryssdal: Speaking of which, you know, holding the picture, and communication, and all the stuff that the Fed does other than actually run the economy, there are, I think, 20 Fed speakers this week, whether it’s members of the Board of Governors, regional Fed presidents, whatever. You’re doing three. I think this your second hit of the day. You were on CNBC this morning. Do you ever, well, do you ever get sick and tired of it? And do you ever watch anybody else from the Fed and see what they’re doing?
Goolsbee: I watch everyone from the Fed!
Ryssdal: Oh, stop it.
Goolsbee: I put a lot of weight on the views of the other members of the committee, because we’re coming from different regions, and we got it a lot of different worldviews. To the question of, is this a cacophony? There are too many people talking. Wouldn’t it be easier for markets if there were just one voice and one opinion? Yes, I’m sure it would be easier. But it’s a committee! It’s a committee. And so when you have committees that vote on things, people have different views. And so I don’t think it’s a problem that everybody expresses what what their view is. I think that’s the kind of transparency that people should want. If you know that the actual decision is being made by 19 different people following and talking to each other, you kind of would like to know that. I’m sure in other voting things, in the whatever — the U.S. Senate, if all 100 senators had the same view and they could just say, “Here’s what the Senate thinks,” that would be easier too. But that’s not how it’s structured.
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