Chicago Fed president on the economy’s mixed signals

Amna Nawaz:

Welcome to the "News Hour."

Inflation is showing fresh signs of cooling, ticking up 2.7 percent year over year, nearly half-a-point lower than many economists had expected. The new data follows the release this week of a long-delayed jobs report that showed weak growth and the highest unemployment rate in four years.

Geoff Bennett:

Taken together, the numbers could bolster the case for more rate cuts in 2026, though, economists caution data collection for both reports was significantly affected by the government shutdown.

Last week, the Federal Reserve cut interest rates for the third time in four months, citing downside risks in the employment market as its major concern.

For a perspective on the economy, we're joined now by Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago.

Welcome back to the program.

Austan Goolsbee, Former Chairman, Council of Economic Advisers: Thank you for having me.

Geoff Bennett:

So let's start with today's inflation report. What stands out to you in these numbers?

Austan Goolsbee:

Well, there's a lot to like in the report that we saw today.

If you remember, because of the government shutdown, we just literally went dark on inflation data. And what we saw right before it went dark was a little bit disturbing. There were some categories of inflation that looked like they were going up or not coming down.

This report today, what struck me overall is that the headline numbers were much below where they were expected, and that was pretty broad-based, and it wasn't just concentrated in one freak thing. Now, one-month data is no months, as I like to say, because there's a lot of variability, and that's especially true when you're kind of reaching down and pulling the bottle out.

We got to brush the dust off of it. There are imputations and things. We would want to see this sustained, but there was encouraging news, the improvements that we saw in inflation today.

Geoff Bennett:

Encouraging news.

For months now, the economy has been sending these mixed signals, inflation easing, but the labor market showing real signs of weakness. When you step back and look big picture, what concerns you the most right now?

Austan Goolsbee:

Well, what concerns me the most is if we were to get more readings like the ones we were getting before the data turned off, where both sides of the so-called dual mandate for the Fed, which the law says, when we set monetary policy, we're trying to maximize employment and stabilize the prices.

If both sides are getting worse at the same time, that's a very uncomfortable position for the Central Bank to be in. And that's where we were, progress on inflation stalled out, but the job market weakening slowly, showing some stability, but weakening pretty steadily. If we return to a circumstance like that, that'd be the biggest concern.

The more we get readings like the price readings that we got today on inflation, the more confidence we would have. Now, look, we're on — we could be on path back to 2 percent. And then, in my view, rates could start going back down again to some settling point that's below where we are today by a fair amount.

Geoff Bennett:

Yes.

So is there enough information that would support cuts?

Austan Goolsbee:

I don't — for me, one month is not enough information, certainly.

But the more information you get, you just want to have some assuredness that we are on path back to 2 percent. If we make progress like this multiple months in a row, that gives you that kind of confidence. You just want to be a little careful one month.

There were — as I say, if you get down into the weeds of these inflation readings, there are a lot of imputations where they said, well, we didn't have any information in October, so let's assume it was zero kind of thing. You wouldn't want to rely just on one month's number when the number is noisy like that.

But as I describe it, there's a lot to like in this inflation report. Let's get some more reports like that, and then we will be feeling much better.

Geoff Bennett:

Got it.

Bottom line, affordability remains Americans' top concern. There was a new PBS News poll that shows prices are the single biggest issue for voters across the political spectrum; 70 percent of those people who were polled said that the cost of living in their area is not affordable.

What realistically can the Fed do to ease that burden?

Austan Goolsbee:

Seventy percent is a big number. That matches out here in the heart of the Midwest, the Seventh District of the Fed. All the businesspeople I'm talking to, all the consumers that I'm talking to, they're mentioning prices as a major component.

The nature of what does affordability mean, there's some aspect of that that has to do with incomes too, not just what the price level is. And all of those things in the economy are mostly not under the Fed's direct control or intervention.

You got to remember, the Fed is taking the lead on economic stabilization. We're trying to figure out, where are we in the business cycle? If there's danger of recession, then we want to consider loosening to try to ease those dangers. If the economy looks like it's overheating and inflation is getting up too high, we're going to work on that.

But what we do is not directly about long-run economic growth, long-run incomes. We're just trying to stabilize inflation and get it back to 2 percent. That's what we have stated as our goal. And we're going to do that. It's just been — we have been elevated for a long time now, and it's not as easy as you would hope it would be.

Geoff Bennett:

Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago, thanks again for your time.

Austan Goolsbee:

Yes, wonderful to see you again.