What’s up with the US economy? With Austan Goolsbee

Episode Summary

Executive Summary: Chris Giles interviews Chicago Fed President Austan Goolsbee about the U.S. economy, tariffs, and Fed independence. Goolsbee says the economy still looks broadly stable, with a slightly cooling labor market, sticky inflation, and significant uncertainty from the government shutdown and trade policy. He favors caution on rate cuts, warns against repeating the Fed’s 2021-22 transitory-inflation mistake, and strongly defends central bank independence.

Main Topics: Economic uncertainty and missing data (Priority: 5/5): Goolsbee says the government shutdown is blinding policymakers to key inflation and labor-market data, increasing uncertainty about the economy and making policy decisions harder. Labor market stability with low churn (Priority: 5/5): He argues the job market remains mostly stable, with low hiring and low layoffs, and says the Fed should not overreact to weak payrolls alone. Inflation and the case for caution (Priority: 5/5): Inflation has moved the wrong way recently, especially with services inflation rising; he thinks tariff-related price spikes may be temporary but wants to avoid front-loading rate cuts. Business cycle, AI investment, and rate-sensitive sectors (Priority: 4/5): Goolsbee says the most rate-sensitive sectors show a mixed picture: housing is weak, consumer spending is solid, and business investment is booming, potentially due to the AI boom rather than the business cycle. Tariffs, supply chains, and retaliation (Priority: 5/5): He describes tariff impacts in the Midwest and beyond, stressing risks from tariffs on intermediate goods and retaliation against U.S. exports such as soybeans. Federal Reserve independence (Priority: 5/5): Goolsbee strongly defends the Fed’s independence, saying political interference would cause inflation to return and undermine credible monetary policy. Public criticism and political pressure (Priority: 3/5): He acknowledges criticism comes with the job and says Fed policymakers must ignore election politics and focus on the dual mandate.

Key Arguments: The labor market appears stable overall, with only slight cooling, so there is not yet a strong case for aggressive rate cuts. Monthly payrolls should not be overemphasized because immigration, population shifts, and retirement patterns complicate interpretation. Inflation is still above target and has started to tick up again, with services inflation especially concerning because it is sticky and unlikely to be tariff-driven. Tariff effects may be temporary if they remain confined to goods, but they become more dangerous when they hit intermediate inputs or trigger retaliation. Business investment strength may reflect an AI-related supply-side boom, which is harder to interpret through a standard business-cycle lens. The Fed should avoid repeating the 2021-22 mistake of assuming inflation is transitory without sufficient evidence. Central bank independence is essential; without it, political pressure would likely lead to higher inflation and worse policy outcomes.

Data Points: Fed confidence in economic outlook: 4 out of 10 - Goolsbee’s self-assessment of certainty about the economy before data blackout from the shutdown Chicago Fed unemployment estimate: 4.3% - Goolsbee said Chicago Fed real-time estimates suggested unemployment would have stayed unchanged Inflation target: 2% - Fed’s stated price-stability objective referenced in the interview Potential rate cuts under earlier outlook: 100-150 basis points - Goolsbee said he previously thought cuts of this size were conceivable if inflation returned to target Consumption growth: 3% maybe for the quarter - He described consumer spending as solid, possibly accelerating Imported goods share of U.S. GDP: 11% - Used to argue tariffs may have limited aggregate impact if contained to imports Fed board terms: 14-year terms - He cited the structure of the Fed’s political appointees as a safeguard for independence

Pivotal Quotes: "There's no such thing as bad weather, only bad clothing." — Austan Goolsbee: A Midwestern saying used to frame uncertainty and policy adaptation "The Fed can't pump oil, the Fed can't fix supply chains, the Fed is not making change." — Austan Goolsbee: Explaining the limits of monetary policy and why supply shocks should be distinguished from cyclical weakness "If the sitting government can tell the central bank what to do with interest rates, inflation will come roaring back." — Austan Goolsbee: Defending the necessity of Fed independence against political interference

Implications: Listeners should expect a cautious Fed: no panic, but also no rush to cut rates. Tariffs, services inflation, and political pressure on the Fed remain key risks, while housing weakness and data gaps will shape upcoming decisions.