AND WE'LL FILL THE COUCH WITH POLITICAL SCIENTISTS.

>> ERIC: WE START TONIGHT WITH THURSDAY'S BIG ECONOMIC NEWS.

U.S. INFLATION COOLED FOR THE THIRD MONTH IN A ROW, LEADING TO SPECULATION THAT THE FEDERAL RESERVE MAY CUT INTEREST RATES IN THE NEAR FUTURE.

HERE TO HELP US SORT THROUGH INTEREST RATES, FLUCTUATING GROCERY AND GAS PRICES AND MORE, LOUIS JOHNSTON TEACHES ECONOMICS AT THE COLLEGE OF ST. BEN'S AND ST. JOHN'S UNIVERSITY.

WELL, PROFESSOR, THE FED'S MISSION IS KEEP INFLATION TO 2%, HAVE PRETTY GOOD FULL EMPLOYMENT.

>> EXACTLY.

>> Eric: AS WE SET UP THE SEPTEMBER MEETING OF THE FED, WHAT'S THE BIG PICTURE?

>> IT LOOKS LIKE THEY'RE HITTING THAT.

MY ONLY CONCERN, THEY REALLY DO WANT TO GET AT THE 2%.

RIGHT NOW IT'S MAYBE 2.5, AND I'M WORRIED THAT THEY'RE GOING TO MAKE SURE THAT THEY GET THAT LAST HALF A PERCENT OF INFLATION.

SO THEY'RE NOT GOING TO -- I'M WORRIED THAT THEY'RE NOT GOING TO CUT INTEREST RATES.

>> Cathy: I WAS GOING TO SAY, HOW COULD THEY SCREW IT UP INCIDENT >> THEY WON'T SCREW IT UP, BUT IT'S JUST THE MARKETS ARE EXPECTING A CUT.

>> Cathy: OKAY.

>> MAYBE THEY'LL GIVE THEM ONE, MAYBE THEY'LL GIVE THEM A QUARTER PERCENT CUT TO SHOW THAT THEY MEAN IT.

I JUST DON'T THINK THAT THEY -- THEY DON'T WANT TO GET CAUGHT IN A SITUATION WHERE THEY EASE TOO SOON.

THEY WOULD RATHER EASE TOO LATE.

>> Eric: HOW GOOD IS THE FED AT TIMING THESE RATE CUTS FOR MAXIMUM EFFECT?

>> TERRIBLE.

IS THE SHORT ANSWER.

THIS ISN'T LIKE, YOU KNOW, DRIVING A CAR AND TAKING YOUR FOOT OFF THE GAS, THINGS LIKE THAT.

DESPITE THE FAMOUS MINNESOTA ECONOMIST WALTER HELLER, USED TO LIKE TO TALK ABOUT THAT, YOU KNOW, WE'RE GOING TO PUT ON THE BRAKES, WE'RE GOING TO HIT THE GAS, FINE-TUNE.

WE CAN'T DO THAT.

AND, SO, PART OF HAT I THINK THE FED IS CONCERNED ABOUT IS THEY DON'T WANT NFLATION TO COME ROARING BACK AGAIN.

AND, SO, THEY'D RATHER TAKE A CHANCE THAT THEY MAY BE PUSHED UNEMPLOYMENT RATE UP.

RIGHT NOW IT'S AT ABOUT 4, 4.1%.

MAYBE GO UP TO 4.5, FROM THEIR PERSPECTIVE, I DON'T THINK THAT WOULD BE A PROBLEM.

>> Cathy: WELL, OF COURSE, THERE ARE TWO PARTS OF THE ECONOMY THAT ARE PRETTY VOLATILE, RIGHTS, GROCERIES AND GAS.

THAT'S WHAT PEOPLE REALLY FEEL.

>> THAT FACTORS DIRECTLY IN BECAUSE GROCERY PRICES GO RIGHT INTO THE CONSUMER PRICE INDEX AND THE WAYS WE MEASURE PRICES.

SO DOES GASOLINE.

AND THEY TEND TO BE MORE VOLATILE THAN THE OTHER ARTS.

AND, SO, FOR EXAMPLE, ONE OF THE THINGS THAT DROVE THE PRICE INDEX DOWN THE LAST MONTH OR TWO IS THAT GAS PRICES HAVE BEEN ALLING.

ON THE OTHER HAND, GROCERY PRICES HAVE BEEN GOING UP.

SO, ONE THING THAT ECONOMISTS TRY TO DO, WE TRY TO SEPARATE ALL THAT NOISE OUT FROM WHAT'S REALLY GOING ON.

WHAT'S THE REAL TREND?

IS AND THAT'S WHAT'S BEEN HARD TO DO.

IT'S REALLY HARD.

>> Cathy: HOW DO YOU EXPLAIN TO FOLKS WATCHING, THEN, WHO, AGAIN, COME BACK FROM THE GROCERY STORE SAYING, WOW, THAT'S REALLY EXPENSIVE, SO EVEN IF YOU HAVE A RATE CUT, HOW OES THAT TRICKLE DOWN TO JUST THESE BASICS?

>> WELL, THE RATE CUT, WHAT THAT WOULD DO IS IT WOULD EASE THE PRESSURE ON OTHER KINDS OF SPENDING BESIDES AT THE GROCERY STORE.

SO, FOR EXAMPLE, IF YOU'RE GOING TO GO OUT AND IF YOU'RE BUYING A CAR OR IF YOU'RE FINANCING SOMETHING ON YOUR CREDIT CARD, THAT MIGHT LOWER THOSE COSTS A LITTLE BIT.

BUT IT WON'T DIRECTLY SHOW UP IN YOUR GROCERY PRICES.

>> Eric: ARE PAYCHECKS KEEPING PACE WITH INFLATION?

>> YEAH, THAT'S THE GOOD NEWS.

IN FACT, PAYCHECKS, ON AVERAGE, ARE KEEPING PACE ITH INFLATION.

AND, IN FACT, IF WE LOOK OVER THE LAST TWO YEARS, WHAT'S REALLY NICE IS THAT NOW PAYCHECKS HAVE ACTUALLY GROWN FASTER THAN PRICES.

SO, WE HAD A WHILE WHERE PRICES WERE GOING FASTER THAN PAYCHECKS.

BUT NOW OVER THE LAST COUPLE OF-YEAR STRETCH, THE PAYCHECKS ARE GOING FASTER.

>> Cathy: YOU MENTIONED UNEMPLOYMENT, AND YOU SAID IT COULD GO UP A LITTLE BIT.

>> YUP.

>> Cathy: FOR SOME PEOPLE THAT DOESN'T SOUND LIKE REALLY GREAT NEWS.

>> IT ISN'T.

PART OF WHAT WE SAW IN THE JOBS REPORT IS THAT WE'RE SEEING SOME SOFTENING, YOU MIGHT SAY, IN THE LABOR MARKET.

PEOPLE ARE HAVING A HARDER TIME FINDING A JOB.

THERE ARE SOME PLACES THAT ARE ACTUALLY CUTTING BACK ON EMPLOYMENT.

AND I THINK THAT'S WHERE THE INTEREST RATE HIKES OF THE PREVIOUS YEAR AND A HALF, ROUGHLY, ARE STARTING TO REALLY HIT.

WE'RE STARTING TO SEE THAT.

THAT'S WHAT THE FED WANTED.

AND, SO, THAT'S WHY I THINK THEY'D RATHER BRING INFLATION DOWN AND LET UNEMPLOYMENT KIND OF DRIFT UP A LITTLE BIT RATHER THAN PUSH INTEREST RATES DOWN.

>> Eric: WHEN WILL WE FACTOR A.I.

INTO THE ECONOMY?

>> WELL, RIGHT NOW WOULD E PART OF T. THAT'S ONE OF THE REASONS WHY I'M BRINGING AN ECONOMIST, ACTUALLY, TO St. JOHN'S, St. BEN'S IN SEPTEMBER TO GIVE A TALK ON THIS.

AND I THINK WE'RE GOING TO BE SEEING THE PRODUCTIVITY EFFECTS OF THAT FOR THE NEXT TWO TO TEN YEARS.

IT'S GOING TO BE SHOWING UP IN ALL KINDS OF DIFFERENT AREAS, FROM MEDICAL RECORDS TO JUST THE WAY WE USE OUR PHONES THAT WE HAVE IN OUR POCKETS.

>> Cathy: HOW ASK THE -- HOW DOES THE PRESIDENTIAL UNCERTAINTY FACTOR INTO ALL THIS, PERHAPS?

>> I THINK IT MAKES PEOPLE MORE HESITANT TO DO BIG-TICKET ITEMS.

I THINK THEY'RE GOING TO BE A LITTLE MORE HESITANT ABOUT MAYBE BUYING A HOUSE OR BUYING A NEW TRAILER, SOMETHING LIKE THAT, BECAUSE THEY NEED -- THEY WANT TO KNOW WHAT'S GONNA HAPPEN AFTER NOVEMBER.

>> Eric: THANKS FOR COMING