Why Austan Goolsbee Is Still Concerned About Inflation

Chicago Fed President Austan Goolsbee is still more concerned about the inflation side of the Fed's mandate than he is about the employment side. This is noteworthy because in general markets are expecting rate cuts to come soon, and also Chairman Jerome Powell, speaking in Jackson Hole, put more weight on risks to the labor market. In this episode recorded at the conference, Goolsbee explains why he has some concerns about whether the inflation embers have been fully stamped out (he's particularly concerned by what he's seeing in the services realm), and why he has relatively more confidence that the labor market is in good shape. Read more:Powell Opens Door to Interest Rate Cut, Citing Labor MarketsWall Street Got the Rally Signals From Powell It Was Hoping For Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 0:58Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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  Bloomberg Audio Studios, podcasts, radio, news.

• 2:30Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:35Tracy Alloway?

  And I'm Tracy Alloway.

• 2:36Joe Weisenthal?

  So Tracy, we are recording this on Thursday, August 21. We are here at Jackson Hole. I need to note at the beginning, we're recording this before the big Powell speech. I don't really think it matters too much because that's on, but I just want to like, get that out of the way, a little timing context for an econ conversation.

• 2:53Tracy Alloway?

  We're not going to talk about that speech for obvious reasons. We don't know what's going to be said, but what we can talk about is the economy right now. That's not going to change between, you know, right now and tomorrow morning, hopefully.

• 3:04Joe Weisenthal?

  Whenever this comes out, probably it's not going to change much. But you know, we've been very lucky lately. We've been talking to a lot of regional Fed presidents and it's really cool that we have access to them.

• 3:14Tracy Alloway?

  Yes, and it's good to get a range of opinions as well because as we've been discussing, the economy does look very uncertain right now and you could make a case for everything from a rate cut to holding to possibly even maybe hiking, which, you know, Jeff Schmidt kind of alluded to when we interviewed him.

• 3:32Joe Weisenthal?

  Yeah, no, it was pretty extraordinary that like, look, you could make a point that stock markets near record highs, credit spreads near record lows, employment low and inflation still warm. Why are we talking about rate cuts? Anyway, we got to keep getting more takes and perspectives on this from the people who actually think about this the best and we have-

• 3:51Tracy Alloway?

  Do we get a prize if we interview every Fed president?

• 3:55Joe Weisenthal?

  We should try. There's got to, there should be a name for that, but we have a guest, perfect guest, someone we've talked to on the podcast before. Very excited to have live here in Jackson Hole, past Odd Lots guest, Chicago Fed President Austin Goolsbee. So Austin, thank you so much.

• 4:09Speaker 06

  That's right. And I'm going to give you a prize. Now, I drove here. I just got here. I just got in an hour and a half ago. I believe that I've driven the farthest of anybody to get here. And one of the things I did on the way was finish-

• 4:26Speaker 06

  My 50th state, North Dakota. Oh, amazing. Turns out there's a lot of people, North Dakota is their last state. And there's officially a club called the Best for Last Club. Oh. And I joined the Best for Last Club. So who's going to be your 12th Reserve Bank President? You're going to get a prize. Congratulations. I saw your road trip like on Twitter. I saw that you were posting, so. There are some amazing national parks on the, on the way. We have a great country, don't we? Yeah, we got amazing country. How's the economy looking to you these days? Well, it depends which direction you're facing. As you know, I thought for Q1 coming into April, it was looking pretty good.

• 5:10Speaker 06

  We had a stable, full employment, the unemployment rate a little above four. Inflation, while having been above the target for four years, looked to me like it was heading, it was coming down and down and down and was headed to 2%. And so I thought reasonable approximation. Rates need to start heading down to where we think they're going to settle, which is a fair bit below where, where we were then, where we are today. Then we go through some bumps. I've heard of them. Through a bunch of dirt in the air, all of this stuff. That it's like, is the economy still where it was in January, February, March? Or are we on some different path?

• 5:54Speaker 06

  I still closet the hope slash think that we're where we were before. And that tariffs, imported goods are only 11% of GDP. If they'll kind of stay in their lane, if we don't keep escalating them, if we don't willy nilly apply them to intermediate goods so that they turn into higher cost of production. It'd probably be okay. And we had a couple of months of benign inflation numbers. And then we got the last inflation number, which is a little less benign.

• 6:35Speaker 06

  And the rise of services inflation threw me for a little bit of a cross current. So I'd say I've still got one eye on inflation. We're now four and a half years above the target. It's one thing to be four and a half years above the target, but we're still clearly trending down. Yeah. If we start trending up and you start seeing inflation rising in non tariff affected categories, like what we saw in services, then I'm gonna get a little more nervous on that side. And on the job side, I still feel like we're something like stable full employment. The revisions, they are concerning. We also know that the labor supply and population growth,

• 7:18Speaker 06

  when there's big immigration things happening, add a lot of noise to just monthly payroll. So I don't want to over index on that. I want to take multiple measures. The four horsemen of truth and justice, in my view, are rates. They're less susceptible to the immigration and population labor supply problems. They're the unemployment rate, the hiring rate, the layoff rate, the vacancy rate. If you look at those rates, three of them still say this is basically full employment and it's looking fine. It looks very similar to 2018, 2019, a strong job market.

• 8:02Speaker 06

  The hiring rate is low. And if you talk to parents of kids graduating from college, you hear It's tough. It's tough to get a job. We're in a low separations, low hiring environment. But that might be full employment. Okay, so that's why I say I don't come to it averse to cutting of rates.

• 8:25Speaker 06

  If we get through this and we can get some stuff settled on the tariff side, we might easily still be on the golden path. It might still make perfect sense to keep going down. But we've just got a couple of flags at the same time.

• 8:42Tracy Alloway?

  I think you just hit all of our talking points in that one answer.

• 8:47Tracy Alloway?

  We will dig into all these things, but just before we do, I have one question. Maybe it's a bit like asking someone who their favorite child is, but what's occupying most of your headspace at the moment?

• 8:58Speaker 06

  I thought you were about to say, Chicago is your favorite bank. And I was gonna say, good choice. Good choice.

• 9:04Tracy Alloway?

  No, is it inflation or the labor market? What are you thinking most about?

• 9:08Speaker 06

  Hmm, I'd say inflation. I'm still thinking inflation. If we had four benign months of inflation that looked like those kind of early ones, that would have helped me be much more comfortable with the idea. It's not gonna be, you know, tariffs stayed in their 11% lane. People aren't freaking out. It's gonna be fine. Let's just go think about the employment side. Now that we're seeing a couple of bumps and things ticking up, I fear we gotta, we gotta think about that inflation side, just given what the history was. If we were having this discussion in 2019

• 9:47Speaker 06

  and we hadn't had the team transitory and the very same arguments like, no, no, this is a one time thing. And so the inflation should just go away real quickly. If we hadn't had that, I would be much more comfortable making that argument. But now that, I don't even like using that word.

• 10:08Tracy Alloway?

  Plus, everyone has experienced inflation now, right?

• 10:10Speaker 06

  Everyone's experienced, so they're more hyped up. They're more amped up, not hyped up. They're, they're amped up to see it. And look, you see this consumer confidence numbers going down somewhat significantly. Survey measures of inflation expectations, which I, in fairness, always said I put less weight on than market-based measures. That said, I don't put zero weight on them. And if you see people in surveys ask, what do you think inflation is going to be over the next one year, two years now, even longer, they're saying it's higher. So we got to think about that.

• 10:48Joe Weisenthal?

  You mentioned those labor market revisions. And when we got that last jobs report is mediocre, but even more than mediocre was the pull down of the prior two months. And there's actually strikes me as two ways of looking at this. One is, oh, you know what? The labor market is really decelerating. Probably we have to have cuts soon if we want to hold on to full employment. But there's another take that actually has come up in a couple of recent episodes, which is, well, yeah, that was the post-April 2 volatility. We're through that now. That actually, we have more tariff certainty than we certainly have more tariff certainty than we did. That was maybe the trough. We got an S and P flash PMI today

• 11:29Joe Weisenthal?

  that actually showed a positive employment rating. This came up in our conversation with Jeff Schmidt, who's throwing this event for the Kansas City Fed, that maybe that was the cyclical low for the year, just the craziness of those couple of months.

• 11:43Speaker 06

  Fascinating. I thought you were going to go totally differently.

• 11:46Joe Weisenthal?

  Okay.

• 11:46Speaker 06

  So those are two schools of thought, both of which are premised on using monthly payroll as an indicator of where we are in the business cycle. And in normal times, that's perfectly appropriate. My third category is at moments when there are population growth shifts.

• 12:10Joe Weisenthal?

  Yeah.

• 12:11Speaker 06

  And labor supply, especially from immigration, be careful using monthly payroll.

• 12:17Joe Weisenthal?

  Because that wasn't one of your four horses.

• 12:19Speaker 06

  That wasn't one of your four horses.

• 12:20Joe Weisenthal?

  That wasn't one of them because.

• 12:22Speaker 06

  And I have no, is it remorse? Not remorse. I have no, I don't feel guilty talking about this topic now, because you can go back and look a year and a half ago and more. When we were getting jobs numbers that were far higher than what we thought the break even was. There was a one group that was saying, we're about to have inflation kick way back up. Because 180,000 jobs a month is faster than break even. Break even is like 85,000 a month. So we're overheating. And at that time, I said, not pay no attention, but pay less attention than you normally would.

• 13:06Speaker 06

  To what the payroll jobs numbers say, because we know there's a whole bunch of immigration that's happening. Behind the scenes that is not showing up yet. Now, when we look back, everybody says, oh yeah, obviously, that's why we generate as many jobs. This is just the exact same idea, but in reverse. Now, it may prove not to be true. This might be an indicator of the business cycle, but we learned the last time around that those four horsemen of truth were rates, not aggregates. Okay, so if you don't know what the population growth rate is, or if it's different than what you expected.

• 13:47Speaker 06

  Be extra suspicious about total payroll employment and total GDP growth. So if you started to see GDP growth overall is slowing down, but the components don't really suggest that. Or if you start seeing payroll growth, you characterize it as mediocre. I don't think it was like 75,000, that's right around the break even. If you're 75,000 plus or minus 100,000, which is normally what you are for monthly payroll.

• 14:24Speaker 06

  You're gonna get months where you have low payroll. And then if you add this immigration thing on top of it, like I say, I'm not saying ignore it. I'm just saying, be very careful. I was a little, not puzzled, but I was a little concerned that the market reaction seemed to be. Let's take our understanding of monthly payroll numbers circa 2018. And say, that must mean we're on the verge of recession.

• 14:53Speaker 02

  Right.

• 14:53Speaker 06

  If that's where your head is, that you say, well, a low monthly payroll in the past has been an indicator of the beginning of recession. Then you gotta explain why these other ones don't show that. Why is the layoff rate as low as it is? You haven't seen an uptick in layoffs. The vacancy rate is actually rising a little and is better than it was in 2019, I think. So this doesn't look like a normal business cycle yet. If it starts to, I'll be the first one saying this is what the beginning of a recession looks like.

• 15:31Tracy Alloway?

  So the idea is that weaker payrolls can be offset or are being offset by weaker labor supply because we're getting less immigration. So the break even rate is

• 15:40Speaker 06

  That the break even is lower.

• 15:41Tracy Alloway?

  Is less. Yeah. Okay, you mentioned the market reaction just then. Can we talk a little bit more about the market? Because as Joe mentioned, you know, stocks are still kind of near their record highs. I know they've been falling a bit this week. Credit spreads at like a 27 year low. I still hear Fed officials talk about rates being restrictive, even though inflation is still above target. But when I look at the market, when I look at financial conditions, it doesn't look that restrictive to me.

• 16:10Speaker 06

  Look, be careful. We're just in the weird glass onion version of the same discussions we've been having for several years now that I've been in the Fed. I'm coming on three years. At that time, it was positive supply shocks. And the whole question was, are we about to re overheat? Do we need to maintain? Do we need to keep raising? Do we need to maintain the rates this high or can we start cutting? I kind of think that a large component of what's in expectations and what's in the market's reaction is the reflection problem.

• 16:52Speaker 06

  That if they think that the Fed is going to succeed, then you could see conditions loosen. But that wouldn't be a reason that the Fed should raise necessarily because they're premised on thinking that it's going to work. That's what I was saying before. And I kind of now think in the same way. It might be an indication. But if you just look at rates and you look at kind of the traditional credit channels of monetary policy, I still think that rates are relatively restrictive. And so that's why I say if you start to see

• 17:35Speaker 06

  deterioration in the labor market, you start to see layoffs going up and it starts looking more like a the turning point in the labor market, then I think we're going to have to seriously contemplate cutting of rates. If we're in an environment where we're actually in pretty stable, full employment and the only thing that's happening is population is making the break even monthly jobs number forty thousand instead of a hundred thousand. And inflation is going up in a bunch of categories that are not tariff related. Now we got to be a little more circumspect.

• 18:31Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 18:46Speaker 07

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service institutional clients.

• 18:55Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.

• 19:03Speaker 08

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some eighty year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 19:22Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 19:32Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 20:14Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work: employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

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• 22:03Joe Weisenthal?

  So I want to ask you a question. It's something that I'm very increasingly interested in and want to talk to a lot more people about, et cetera. But there are aspects of this economy that, as you say, may kind of resemble 2018, 2019, et cetera. One thing that strikes me as very different is the long-term rate and the implied, therefore, what people will call the neutral rate or whatever. And maybe rate cuts are coming soon, but the market is not expecting a deep cutting cycle at that terminal rate. What's changed? What's the fundamental difference in 2025 versus 2018 such that for the Fed to hit its 2% inflation target, the market is pricing on so much higher rates than what it had anticipated prior to COVID?

• 22:45Speaker 06

  I don't, I mean, I should ask you. You've talked to a lot of people.

• 22:47Joe Weisenthal?

  I'm asking you. You're there. No, I'm not.

• 22:50Speaker 06

  I would say there's one way to look at that, that if you asked historically, which of those is weird? 2018, 2019 is what's weird. You know what I mean? Like, the loan rates now are, look very, very similar to kind of historical patterns. There's a whole tremendous, almost, industry in research trying to diagnose that. And that bleeds into the question of, are we going back to super-low rates, ultra-low rates? Because is it global savings glut? Is there something happening with productivity? Do they think demand is going to be low?

• 23:32Speaker 06

  Is there a feeling that Treasury is going to have to issue so much debt? I mean, there's been a big increase in debt to GDP ratios worldwide. I do find informative, this increase in loan rates is not exclusive to the US. You see it in a lot of countries. So I don't, I don't totally know. There's probably some of many of those explanations. And for whatever reason, what the market thinks the Fed is going to do in short rates does seem to have a outsized impact on 30-year rates. So that's, part of it is probably just reflecting how steep

• 24:15Speaker 06

  or how shallow a path do they think the Fed is going to take?

• 24:18Tracy Alloway?

  So just going back to inflation for a second, you've mentioned a couple of times now that you're worried about maybe, you know, tariff-induced inflation in goods starting to seep into services. Can you talk a little bit more about how you see that channel actually working? And then also, you're head of the 7th District, and you have some interesting states in there. You've got Michigan, which still makes cars. You've got Iowa, which has farmers. Like, what are you seeing in terms of the pass-through from goods to services there?

• 24:49Speaker 06

  Okay, these are both important topics for us to think through. Let's go backwards in order. The 7th District headquartered in Chicago is the most manufacturing-intensive of all the districts, and by far the most auto-production of all the districts. It's one of the big agriculture-heavy districts, but Kansas City, Minneapolis, there's a couple of others. I would say in the run-up to April 2nd, and through April 2nd into May, almost to June, their, their hair was on fire. I mean, this is going to wipe us out. If anything's

• 25:30Speaker 06

  like the rates of what they just announced, the auto suppliers, that we had small margins to begin with, that we're going to die. We don't know, you, we don't know what's going to happen. That's why I was getting amped up about it at the time.

• 25:47Speaker 06

  As we kind of got some clarity on what the raids were going to be, and particularly when they began exempting, if it's USMCA compliant, it's not going to apply. For a bunch of intermediate goods, it's not going to apply. Calmer influence. I would say, as I talk to people now, for manufacturing and for agriculture, they're still in that space. In agriculture, they were particularly heartened by, as some of the negotiations got concluded, even if they weren't going back to no tariffs, the fact that they were going to something that would not lead to retaliation was a very big thing for agriculture,

• 26:30Speaker 06

  because a lot of their biggest markets are overseas. I was just recently in Iowa, though. They're still nervous in that space that, in some ways, the damage is already done, and it takes a long time to build up these export relationships. And if you smash that, and they start buying soybeans from Brazil, that even if you go back to zero tariffs, they might have already set it up. So there is like a nagging that the longer run impact will be different than the short run impact. But I would characterize short run impact scaled down from, I always get the DEFCONs backward.

• 27:09Joe Weisenthal?

  I do too.

• 27:09Speaker 06

  DEFCON 5 is the worst, right?

• 27:11Joe Weisenthal?

  No. I thought DEFCON 1 was the worst.

• 27:14Speaker 06

  Everybody says.

• 27:15Tracy Alloway?

  How often are we declaring DEFCON 1 or 5?

• 27:17Speaker 06

  Whatever it is. There was a high DEFCON.

• 27:21Joe Weisenthal?

  A bad DEFCON.

• 27:22Speaker 06

  Dangerous DEFCON, as high as you could be. And now it's gone back, not background noise, but the sentiment like, we can live with this. If this is what it is, as long as this stops, where we're not going to face new ones, we can deal with this. Now that said, it sort of goes to your second, to your original.

• 27:45Joe Weisenthal?

  DEFCON 1 is the highest state of military readiness.

• 27:47Speaker 06

  DEFCON 1 is highest. So they were at DEFCON 1,

• 27:50Joe Weisenthal?

  Okay.

• 27:50Speaker 06

  and we're back to DEFCON 5.

• 27:52Joe Weisenthal?

  I just looked that up.

• 27:53Speaker 06

  Okay. I added backward, which is embarrassing, because I'm always like, no, no, you know, that's the opposite. But now I opposited myself, yeah.

• 28:01Joe Weisenthal?

  Yeah, I get it. I've done that.

• 28:04Speaker 06

  So the question about, what is the mechanism that the tariff inflation turns into services inflation?

• 28:13Speaker 06

  Permit me a slight detour. What is the mechanism that tariffs turn into inflation of goods? As opposed to just a one-time price increase? Because there is an argument that for the platonic ideal of a theoretical one and done tariff, it's just a one-time price increase. So no matter what it is, just look through it.

• 28:36Tracy Alloway?

  Right. And a one-time price increase, just to be clear, doesn't count as inflation under traditional economic frameworks.

• 28:42Speaker 06

  Because basically, if you go measure inflation, inflation would be high for one year.

• 28:47Tracy Alloway?

  Yeah.

• 28:47Speaker 06

  And then the inflation would go away. But that was the very argument of Team Transitory in 2021 was, yes, here this thing hits supply, we're going to let bygones be bygones. We'll eat the inflation for one year and then it's going to go away. Now, remember, this is for a one and done tariff. And this is not one and this is not done. So let's be a little more circumspect of just saying, hey, theoretically, it's just going to go away. We learned in COVID that if it's a big enough impact on the supply chain, and especially

• 29:28Speaker 06

  if it's going industry A to industry B, industry B makes inputs for C, that process takes a lot longer than we thought it would in 2019 and 2020. When we got to 2021, we're like, yeah, hey, it'll fix itself, you know, probably six months. That was the argument of transitory. So I'm a little concerned about just the impact of tariffs on goods inflation itself lasting longer than we wanted to and people

• 30:07Speaker 06

  getting mixed up. You'll recall the perfectly valid arguments in 21 and 22 and into 23, where people said, it doesn't matter if it's supply shock induced inflation. If it's high for too long, it's going to fold into expectations and then we'll never get rid of it. That didn't prove true this last time. But if people are more attuned to price increases, it could, and we just got to be careful on that front. Now ask the question, how does it turn into services inflation? One part, what if the services inflation isn't coming from tariffs? Okay, so that's the, the danger of services inflation is

• 30:52Speaker 06

  you kind of can't really give a simple mechanism of why services inflation would be rising. The new month of services inflation was quite terrible. And some part of that are non-market determined, so I put a little less weight on those. But it wasn't good. That probably the mechanisms that you think through, how would tariffs cause that? I think you'd be hard pressed to figure out how it would cause it. But that doesn't make you feel better. That makes you feel worse because it's like, whoa, whoa, wait a minute. Maybe some inflationary dynamic was never put out. And you ever like make the campfire? And it's like, oh yeah, it's done.

• 31:35Speaker 06

  And then you look away, ah, it's back, it's back on fire again. We can't let that happen. We've been four and a half years above the target. We were making progress. Now we've stopped making progress. If it's spreading into services inflation this immediately, it's probably not coming from tariffs. The other mechanisms, how does it move into services inflation? Is sort of wage price spiral land where people say, well, I think prices are going to go up, so I'm, I'm going to be that much more aggressive in my wage negotiations with the employer. The only reason I'm hesitating to go down this lane is then you're probably going to say, well, what about wages?

• 32:20Speaker 06

  Are wages compatible with 2% inflation? And you can't answer that until you know what the productivity growth rate is, which has been one of the bright spots. But that's actually my, one of my bigger fears about the tariffs is there's a long literature of research in economics showing.

• 32:43Speaker 06

  You raise tariffs, especially on components, supplies. It drives down productivity growth. Yeah.

• 32:51Joe Weisenthal?

  Tracy and I were in Alaska recently, and I feel like we heard multiple ways, whether it's like the company's making tubular goods for the oil patch out there, and that's going to make it increase breakevens, whether it's like just the uncertainty.

• 33:04Tracy Alloway?

  Just doing the paperwork for customs, sounds like a huge lift.

• 33:07Speaker 06

  Okay, it sounds like a productivity destroyer, you know, factor.

• 33:13Joe Weisenthal?

  I have one last question, and I'm turning this into my question that I ask every Fed president that we can talk to.

• 33:20Speaker 06

  Is that why Tracy's rolling her eyes?

• 33:21Joe Weisenthal?

  Yeah, I'm probably.

• 33:22Tracy Alloway?

  I wasn't rolling my eyes. This is, this is my resting face.

• 33:26Joe Weisenthal?

  But I think it might be important down the line. Why are dissents rare at the FOMC?

• 33:31Speaker 06

  Why are dissents rare? I have, I've only been there a short time. Fed years are like reverse dog years or something like you'd be there seven years. They're like, oh, he's the new guy. Okay, so I'm coming up on three years.

• 33:45Joe Weisenthal?

  Yeah.

• 33:46Speaker 06

  There've been some dissents. I.

• 33:49Joe Weisenthal?

  Can I tell you what I'm trying to get at?

• 33:50Speaker 06

  Yeah.

• 33:51Joe Weisenthal?

  At some point, the chair is going to be replaced. And what I'm trying to understand is, when there's the new guy is in that position, to what degree does the fact that most of the time, the voting members align with Powell, how much of it is the fact that you more or less think about the economy in roughly similar ways with, and looking at the same data? And how much is it about Powell has done a good job of navigating? Yeah, navigating the board. And so this is why I'm asking the question, because I'm thinking about what those dynamics are going to be like with the next guy.

• 34:26Speaker 06

  I think it's more the latter. I feel like it's more the latter. You know the rules. I'm not allowed to speak for anybody else. Speak for the committee, speak for the chair. You know, I'm a longtime fan of Jay Powell. I think he's a first ballot Hall of Fame Fed chair, and he has great judgment. He is also navigated.

• 34:46Speaker 06

  A pretty diverse set of worldviews on that committee. That's what makes me feel it's less the first thing.

• 34:55Joe Weisenthal?

  Okay.

• 34:55Speaker 06

  Everybody just has the same worldview.

• 34:57Joe Weisenthal?

  All right.

• 34:57Speaker 06

  You can see from the minutes.

• 34:59Joe Weisenthal?

  Yeah.

• 34:59Speaker 06

  That that's not true. People have different worldviews. He's been remarkably skilled at whether it's through statements, whether it's through like what's, what's written on the page, that everybody, you coming from different sides, but you can agree. Yes, I agree with that. And I think that's why there are fewer.

• 35:22Joe Weisenthal?

  Yeah.

• 35:22Speaker 06

  Dissents, but in the time I've been there, there have been numerous.

• 35:26Joe Weisenthal?

  There's a door to it the last minute. No, I know. Yeah.

• 35:28Tracy Alloway?

  Can I ask in general, what are the vibes like right now when you guys are getting together?

• 35:33Speaker 06

  Is Joe gonna roll his eyes?

• 35:34Joe Weisenthal?

  I don't know.

• 35:35Speaker 06

  For that one. The presidents get together pretty frequently. The presidents of the reserve banks get together pretty frequently. We have a conference of presidents. There are a whole bunch of operational things that we have to do. And we're a quirky bunch and it's usually the vibe is pretty fun from that. The FOMC meeting itself is much more formal. And it's probably secret information for me to tell you what the vibes are. If it's not stated in the minutes, what the vibes are.

• 36:06Tracy Alloway?

  Yeah.

• 36:06Speaker 06

  It's probably not supposed to.

• 36:08Joe Weisenthal?

  There's a verbal way for that to be expressed, if it was gonna be expressed. Austin Goolsbee, thank you so much for coming back on.

• 36:13Speaker 06

  It's always a pleasure. Before you guys were ever famous, I was in here. I was friend of the show before.

• 36:18Joe Weisenthal?

  That's right. No, that was fantastic and definitely won't be the last time we have you on the show.

• 36:21Tracy Alloway?

  Thank you so much.

• 36:22Speaker 06

  Thank you.

• 36:36Joe Weisenthal?

  Tracy, it really is pretty striking, the degree to which it feels like.

• 36:42Joe Weisenthal?

  The rate cut question is not settled at all.

• 36:43Tracy Alloway?

  No, not at all.

• 36:44Joe Weisenthal?

  Not at all.

• 36:45Tracy Alloway?

  And at this point, I mean, I guess we have to talk to more Fed presidents, but it does seem like maybe the market has gotten a little ahead of itself in terms of expectations. Again, we're recording this on Thursday, August 21st, and we're going to get the Powell speech tomorrow. So who knows what he's going to say? Maybe markets will recalibrate their expectations after that. But you do hear a lot of convincing arguments for why you should look through things like weaker payrolls, right?

• 37:12Joe Weisenthal?

  I really, really liked the four horsemen of truth. And this idea that in the time of volatile population measures, you want to look at rates. I'm going to, I'm going to like, remember that it was very clearly articulated by Austin there. So like vacancy rates, hiring rates, firing rates, these are the things that actually give us clean signal across the cycle when population levels are in flux.

• 37:37Tracy Alloway?

  Well, Powell made a similar argument in the questions after the last meeting, right? Didn't he say like, he's looking at the unemployment rate because he thinks that's more meaningful at a time when you are having these changes?

• 37:49Joe Weisenthal?

  Yeah, no, I do think, um, I have to, I have to actually take that. Yes.

• 37:54Tracy Alloway?

  I could be wrong.

• 37:55Joe Weisenthal?

  I have to internalize this a little bit better.

• 37:56Tracy Alloway?

  I could be hallucinating statements from Powell because that's all we've been thinking and talking about.

• 38:01Joe Weisenthal?

  The unemployment rate has remained fairly low, and I think that's important. But I'd like Austin's point is like, that he said at the end, that if you can't tie sort of the services inflation in some way to like the tariff, that's even like, the fact that we don't have a good story for it. Like, if you have a good story for it, that's one thing. But this idea that's like, well, what if this is just that ember that didn't go out? You like throw a cigarette in the trash or whatever, and there's that little spark of it? Like, that is a little bit more ominous.

• 38:29Tracy Alloway?

  Yeah, and I do think, like, the starting level is important here. So you have to remember, the Fed spent the past three years fighting inflation. It's still not down to 2% and everyone has higher prices on their minds. Like, we've all experienced it at this point. And so the concern is that, like, the impulse to raise prices and tolerate more. High prices is higher than it once was.

• 38:52Joe Weisenthal?

  Yeah.

• 38:52Tracy Alloway?

  I think that's important. It doesn't get discussed enough potentially. All right. Shall we leave it there?

• 38:57Joe Weisenthal?

  Let's leave it there.

• 38:57Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 39:03Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at TheStalwart. Follow our guest, Austin Goolsbee, at Austin Goolsbee. Follow our producers, Carmen Rodriguez, at Carmen Armin, Dashell Bennett, at Dashbot, and Cale Brooks, at CaleBrooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 39:26Tracy Alloway?

  And if you enjoy Odd Lots, if you want us to interview all the Fed presidents and win a prize, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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