Midwest Agriculture Conference Fireside Chat Transcript

STEVE EDWARDS: Thank you all so much. Good afternoon. I am Steve Edwards, Executive Vice President of External Affairs and Civic Engagement here at the Chicago Fed. And we are delighted to have all of you together in this room, not just for the conference, but for this next session, which is our Fireside Chat.

We are pleased to have Edward Lawrence of Fox Business Network moderating today's conversation. As many of you know, Edward covers economic and political breaking news out of the White House for Fox Business Network. He is an award winning journalist, having received multiple accolades, including an Emmy and Associated Press awards for his in-depth reporting. He's also interviewed many of the key leaders across business and economics, including the Chair of the Federal Reserve Board of Governors, Jerome Powell.

Today, he'll be in conversation with Austan Goolsbee, who is the President and CEO of the Federal Reserve Bank of Chicago. In addition to leading us at the Chicago Fed, Austan is also a member of the Federal Open Market Committee, where he is a voting member this year. Prior to joining the Chicago Fed in January of 2023, Austan spent nearly 30 years as a member of the faculty at the University of Chicago's Booth School of Business, where he was the Robert P. Gwinn Professor of Economics at UChicago Booth. So please join me in giving a warm round of applause for both Austan and Edward, and we turn the floor over to the two of you.

[APPLAUSE]

EDWARD LAWRENCE: Thank you. I'm going to put this right back here. We'll need that in just a little bit. Yeah, we don't have a lot of time. 30 minutes or so for our discussion. And then we'll have another audience questions after that. I've been at Fox Business for 7 and 1/2 years, and I cover from the White House the economic issues, but I cover the Federal Reserve, Commerce, Treasury, Trade and Labor. So it all kind of--

AUSTAN GOOLSBEE: Edward the Eloquent, that's what we call him.

EDWARD LAWRENCE: And obviously, the important man in the room, the Austan Goolsbee, President. Thank you for being here. I want to get right into this. So your district, agriculture, five states, is what your district touches. Everything from soybeans to cattle is in this district for an industry. What trends are you looking at for the Midwest right now?

AUSTAN GOOLSBEE: Well, we're heavier on grain than cattle. It's been a tough, as you know, it's been a tough year or so for the agriculture economy on the farm side. They got prices, the sale prices kind of leveled off, while input prices way up, squeezing margins. And then you add some of the retaliations or some of the traditional export markets being diminished. And those have been some of the trends that we've been seeing.

The livestock side has been a little better. You haven't seen the same input cost increases, and the sale prices are pretty decent.

EDWARD LAWRENCE: Well, we saw PC inflation tick up to 2.7% year over year. CPI inflation seems to be ticking up, too. Is this a product of increased pressures on farms where this is coming from? Or is it something at the grocery store end of it? Where are the inflation pressures in the chain for food?

AUSTAN GOOLSBEE: $0.15 on the dollar, I think, is David here? I think was the actual farm component of the total food price is about $0.15 on the dollar. So there's a lot of distribution, there's a lot of retail. There's a lot of things in the cost stack, let's call it. It partly depends a lot on which agriculture and food products we're talking about.

We went through, famously, the egg scare, where the prices went way up and came down. Then we've gone through the screwworm scare, and that has affected some of the beef prices. So in those cases, it's probably a little different than in ones where it's distribution or retail.

EDWARD LAWRENCE: So the Midwest has strong manufacturing base, also. We've got some autos here. 25% tariffs. How do tariffs factor in to the agriculture to the manufacturing? And is it evenly distributed? Are they evenly--

AUSTAN GOOLSBEE: No, it's not evenly distributed. The seventh district is 90% of the economies of Iowa, Michigan, Illinois, Indiana, and Wisconsin. It's the kind of heart of the Midwest. That's one of the biggest agriculture districts. There are two or three that have really large agriculture, and seventh district is one. And we have by far the most manufacturing, and really by far the most auto production, as you say.

Now, the thing is, the two biggest most externally facing broad industries in the United States are agriculture and manufacturing. So as soon as you started hearing about trade wars, you knew that seventh district was going to get a little agitated. And I saw one analysis that of the seven most exposed to tariff states in the country, four of the top seven are of our five states. And I believe number one was Indiana and number two was Michigan.

EDWARD LAWRENCE: So what's the impact of that?

AUSTAN GOOLSBEE: The impact is not good. I mean, the tariffs raise, especially if you apply the tariffs to inputs, then it transforms the tariff into a tax on domestic production and threatens that tariffs jump out of their lane. So the immediate lane of the tariffs on imported goods are about 11% of GDP in the United States. So there is a sense in which if it just stays in its lane, it doesn't have to be super material for the aggregate economy. But as you've seen it ramping up on inputs, now it's jumping out of its lane. And as you've seen other countries retaliate, the way they tend to retaliate, is on American agriculture.

EDWARD LAWRENCE: So what's been the real impact then for your district seeing these tariffs? And now that they're kind of settling down, we've got some framework deals with a number of countries around. Is it settling?

AUSTAN GOOLSBEE: You tell me. We want it to be. I would say you characterize-- we've gone on a roller coaster coming into before liberation day in April 2 and the announcements of the tariffs, I would characterize the economy is going pretty solid. And with prices and inflation coming down to our 2% target, GDP growth pretty strong and stable, and the job market looking what I would characterize as full employment.

And so I thought rates are going to come down in that environment. And I was saying, I thought they had a fair bit of ways to go. When they announced the tariffs at those kind of rates, especially in manufacturing, also in agriculture, it was a hair on fire kind of moment where a lot of folks in various manufacturing industries were saying, we can't. If these are the rates, we're not going to survive. We're going to see a real closing out.

A lot of the rates came down. They signed some deals. They exempted some things. If it was USMCA compliant, it didn't apply, et cetera. They got a little more comfortable with, maybe it won't be as bad as it seemed on day one. And that's still for a lot of industries where their head is. Now, it seems like we're going into a new wave of tariff announcements on building materials, on lumber, on--

EDWARD LAWRENCE: Cabinets, upholstry--

AUSTAN GOOLSBEE: As well as maybe heavy trucks. And we've seen a kind of a ramping backup of some of the other metals inputs. So when I'm out talking to people, it feels like they're just wary. They're uncertain. And we might be going back into that, everybody just put your pencils down kind of a moment. Where you just wait until you figure out where it's going to be.

EDWARD LAWRENCE: Yeah, before April 2, the hair on fire, I had hair. And then-- Wariness, that uncertainty. So you think that uncertainty may be coming back. And does that pause affect farmland and the farm industry? So when you say, we see some businesses have paused plans because of uncertainty, does that equate to your district related to agriculture.

AUSTAN GOOLSBEE: I think it does, though, as I say, the backdrop for agriculture was a little different than the backdrop for the overall economy, which was steady boom. It was already by, before April 2, the case that farmers were getting squeezed with this output price flat, input price way up. So the farm income margin getting crushed a little bit. If you add the tariff uncertainty on top of that, you could see why they're a little more agitated.

EDWARD LAWRENCE: So let's talk about the labor market. Now, the Chicago Fed recently started the Chicago Fed Labor Market Indications.

AUSTAN GOOLSBEE: Indicators.

EDWARD LAWRENCE: Indicators. I'm sorry. We got to work on that name, by the way. We got to get some marketing folks to help you out with that. But indicators. What does this tell us? And why create this indicator?

AUSTAN GOOLSBEE: As you know, all statistics, the Bureau of Labor Statistics is the best data provider in the entire world. And all data have gotten noisier over time because people don't like filling out surveys anymore. I don't know if they ever did, but now nobody would answer their phone. And so things have gotten noisier.

And so what we did, and we have developed it over a series of months, is take 11 different data sources, some of them official statistics that come from the government, a bunch from the private sector, combine them all into generating these three statistics. One is a real-time nowcast projection of what will be the unemployment rate at the next time it's announced.

If there is a government shutdown, and this Friday they can't announce the unemployment rate, we're going to be feeling pretty good that we've developed this methodology to use all what statistics are out there to give us a read of where we think unemployment is as of that moment. But then also the hiring rate among the unemployed and the layoff and other job separations rate of people who have a job.

Because at moments like right now where weird things are happening in immigration and on labor supply that make it hard to interpret the monthly number of jobs created as an indicator of where you are in the business cycle, we saw in previous times when we had these same issues, that these rates were a more accurate indicator of the business cycle. And the unemployment rate, the hiring rate, the layoff rate, the vacancy rate, those are kind of like the four horsemen of truth and justice in the labor market.

Mostly they say, so that was the backdrop, the short version of what they say is much more steady, little bit cooling, but pretty steady. And that looks different than the monthly payroll number, which dropped quite a lot and got people agitated. But I just caution folks, don't overindex on a number that you know there are a bunch of problems with that number as a business cycle indicator when immigration is moving.

EDWARD LAWRENCE: But do you think aggregating it, like you did, with public and private data makes it more efficient/ Makes it better? Makes it--

AUSTAN GOOLSBEE: Make it more robust, I hope. The thing to remember about really all the private sector data is, at the end of the day, everyone relies on the Bureau of Labor statistics to make their thing nationally representative. I think they asked me as soon as I got to the Fed if I was a hawk or a dove. And I said, I don't even if I like birds. I only aspired to be a data dog.

And one of the first rules of the data dogs is, sniff every piece of data that hits the floor. Because it might be food. And that's what we've taken to-- we've taken the kitchen floor approach to the accumulation of data. If you no longer have a world where one statistic or one series is the-- I keep wanting to call it the gold standard.

But you know in our world that's bad. The gold standard is not good. If you no longer in a case where one data series tells you everything you need to know, then get all the series and figure out what do they collectively say. And right now, it feels like they're collectively saying still, pretty steady, cooling mildly, but still pretty steady labor market.

EDWARD LAWRENCE: So maybe you could rename it the Fido indicator.

AUSTAN GOOLSBEE: The Fido, roar!

EDWARD LAWRENCE: Yeah, exactly. So the newest member of the Federal Reserve, Stephen Miron held your position that you held years ago. He believes that deregulation and the pushing of the supply side economy and deregulation will really help in terms of the economic boost and whatnot. Where do you see deregulation entering into the agriculture market and the agriculture industry? And could it boost that industry, or is it?

AUSTAN GOOLSBEE: Maybe. I certainly hope. We've seen in the last two years a pretty remarkable uptick in the productivity growth rate of the economy overall. And there's nowhere-- the only reason that agriculture might not have had as fast a growth rate in the last two years is they've been the productivity miracle for 50, 75 years. If you look, I literally think we've doubled, or maybe more than doubled, the productivity of farms per acre over not a long period of time-- 50 years, 60 years.

So maybe there is more to be squeezed out of it. And I certainly hope this is right, that anything we can do to up the productivity growth rate is going to make us richer. That said, if you're the FOMC and trying to determine the interest rates, we're really about economic stabilization and the business cycle and kind of a shorter run time frame. So personally, I'm not inclined to change policy between now and the next meeting based on what might come, and what it might do to productivity over the next 10 years.

EDWARD LAWRENCE: On those interest rates, that does affect the big machinery that farms rent, lease, buy.

AUSTAN GOOLSBEE: Yes.

EDWARD LAWRENCE: Does that factor in when you sit down at the table and make your argument?

AUSTAN GOOLSBEE: It does. It definitely does. So permit me one diversion into why is the Fed the tip of the spear for economic stabilization. It's because we meet every six weeks, so we can be more timely if they have to pass a bill or pass a budget or keep the government lights on. Whatever it is that they got to do, they don't do it that rapidly in Washington.

And the most cyclical industries in the economy also tend to be the most interest rate sensitive. And that is why monetary policy jiggling with the interest rates is the natural first line of defense. If you think the economy is overheating, it would tend to be overheating in exactly these cyclical industries, like consumer durables, business fixed investment, housing construction. So the Fed changes the interest rate and cools those overheating industries down.

That made it complicated in COVID when we had a recession that wasn't based on those at all. And a bunch of the most cyclical businesses actually went up in the downturn, like consumer durables. Everybody's buying a Peloton and buying a TV, and that's normally the opposite of what happens in a recession. So it definitely crosses our mind when we're setting the interest rates, how will the interest rate sensitive sectors respond?

And to the extent that business investment like farms buying big machinery, I was out at Iowa Farm Bureau, another time I was out in Cedar Rapids, two times to more rural ag economy in Iowa, and there's a heavy feeling among a lot of farmers-- Cut the interest rate. Our interest payments are too high. Our equipment is too expensive. So that's a big channel of monetary policy.

EDWARD LAWRENCE: Now, as you can't throw a stone without hearing somebody on TV talk about artificial intelligence, AI, what role do you see AI playing in your industries for your district in the future?

AUSTAN GOOLSBEE: That's a complicated question, of course. In a narrow sense, I do think a lot of folks that I talk to in agriculture are excited by the prospects that AI would make pest control easier. AI could analyze the soil and figure out what chemicals would be most appropriate. Things like that.

The rise of drones, we were just talking at lunch that drone technology to spray, to cover crops, seeding, things like that, is more precise, can be more efficient than some of the older methods. That said, I also want us not to get too out front of what the gains are that could come from AI.

And there's, of course, a danger. If you're old enough to remember the first internet bubble that led to the recession of 2001, was rooted in reality. The internet was super important. It's just that it was growing 25% per year. And then the announcement that maybe it will grow 7% per year, not 25% per year, which is still very fast growth, led to a massive overbuild of fiber optic cable. All this stuff that they were building the infrastructure for ended up driving us into recession because we got too far out front of where we were in the technology. It is worth--

EDWARD LAWRENCE: Is that happening now?

AUSTAN GOOLSBEE: I don't know, but it is worth contemplating that, especially in a sectors like manufacturing or agriculture where they're still trying to out what are the use cases and how much productivity improvement is going to come. If you're spending the money that you anticipate is going to be coming from AI and has driven up the valuation of your company's equity, the more you're spending out of that, the more nervous I'm getting.

EDWARD LAWRENCE: Yeah, I want to go back to trade a little bit. So within the trade deals that the president is getting, and not getting political here, but he's got guarantees for ag buys or for agricultural buys in some of them. Japan, I think it was, $100 billion guaranteed. Do you think that matters? Do you factor that in when you look at business forecast models that down the road there will be these figures supposedly coming from agriculture, specifically? Or how does that figure in? Or does it?

AUSTAN GOOLSBEE: To me, that sounds like just another demand condition. And we try to anticipate or forecast what any demand conditions are going to be for various crops. If people in deals are pledging new demand, that would be highly relevant. If they're pledging, we'll buy X much, and we always buy X much, then that would not factor into the forecast.

And likewise, on the other side, too. If countries are coming in and not buying where they used to be buying, then we would figure that in. But if they're threatening something and it's basically what they were going to do anyway, then it probably wouldn't.

EDWARD LAWRENCE: We've heard China has stopped buying soybeans. Is that being factored into your forecast Now

AUSTAN GOOLSBEE: That's, sadly, being factored in the forecast. And it factored into the experience. I mean, if you talk to anybody, we got a lot of the big soybean states. I think Illinois is number one. It's a tough moment. Oh, I got the Iowa peanut gallery over here. Look, maybe Iowa's number two. I don't know. Look, that's just a reality. And maybe we can get out of that. Hopefully, this is just a short-term thing, and they'll out whatever negotiations. And we'll get out of it.

EDWARD LAWRENCE: How closely do you watch exogenous shocks from outside, like screwworm. Screwworm. I get to say that. Screwworm. Yeah, how closely do you watch that? And how does that factor in to your forecast then going forward and for the ag business?

AUSTAN GOOLSBEE: It does. I mean, it depends what it is that's happening. These are all in the economist language. A lot of this is on the supply side. And the Fed can't pump oil. The Fed can't abolish screwworm. All we can do is tighten a screw or loosen a screw. We have this monetary screwdriver thing.

But that said, what the underlying conditions are matter a lot. So when our ag experts are thinking about farm incomes, they're definitely thinking about energy costs. They're thinking about screwworm diseases. Now, that's slowly moving its way up.

But given the seventh district is this far north and far from the border, there is a kind of a weird way that the screwworm thing, by driving up the prices, has actually enhanced the incomes of livestock producers in the seventh district. Because they're getting the higher prices, but they're not dealing with the health problems coming from that.

EDWARD LAWRENCE: So I want to get back with a couple of minutes we have left for my questions. I'm going to take some audience questions here. How does the 3.8% GDP reading, which was an estimate for the second quarter, how does that change the path of rate cuts that you were thinking about?

AUSTAN GOOLSBEE: So 3.8% A, is very high. And B, is higher than what was expected.

EDWARD LAWRENCE: 2% is what they were expecting.

AUSTAN GOOLSBEE: Yeah, they were expecting something like 2%. Now, it's just a quarterly number. So it's annualized, but it's just for one quarter. And I always get a little nervous whenever anybody's like, hey, here's one data point. How does that change your thinking? I try not to have individual data points change my thinking.

And that's even more true when, in the previous quarter, there was a surprisingly negative number, which at that time they said, oh, this is all because of front running. And they bought a bunch of stuff ahead of the tariffs coming in. And so they said, you'll probably see an inverted rebound in the next quarter. And we just saw a surprisingly big rebound. So, I think we need to settle that down to figure out what the underlying trend is.

EDWARD LAWRENCE: Yeah and the Fed does look long term. So then does a government shutdown-- It looks likely there could be a government shutdown. How does that figure long-term? Or is that something that the Fed doesn't really look at, because, eventually, you know that they're going to pay the bills.

AUSTAN GOOLSBEE: We look at it. We're not in the fiscal policy business. So Congress, the Senate, the House, the president, they got to sort all of that out. We just watch from the sidelines. That said, it can matter. But historically, shutdowns-- it matters how long the shutdown goes. And how wide the shutdown is.

Historically, not super wide shutdowns that don't last for very long kind of do nothing to the aggregate economy. Because yeah, they weren't paid. But people's spending doesn't go down because they're going to be paid, eventually. And so it depends how long this goes. It depends how wide it is. If there are reasons why this shutdown looks different than previous ones, then we would have to revise. But that's the starting point.

EDWARD LAWRENCE: So with the few minutes that we have left for my questions, what keeps you up at night with the economy looking forward?

AUSTAN GOOLSBEE: You know, I always say, the job of Fed official is don't sleep at night. You're on the night watch. So nothing. I'm not sleeping. That said, what am I nervous about? I would be nervous that we've spent 4 and 1/2 years with inflation above the target of 2%.

And it had been falling, falling, falling, so at least I was believing and making the argument, we're on path back to 2%. Now, it's going the wrong way. So we're still above 4.5%, but inflation has been rising now for several months. Hopefully, that's a temporary/transitory. I don't even, like, I can't even say it. I'm choking.

EDWARD LAWRENCE: You gotta put money in the jar.

AUSTAN GOOLSBEE: Where's the water? Yeah, where's the water? Look, hopefully that's what it is. But if inflation proves more persistent now, just as it did in '21, '22, that would be a really difficult scenario for the Fed or for any central bank. Because then it would be what I call stagflationary direction, which is we have by law a dual mandate to maximize employment and stabilize the prices.

Normally, one side is getting worse and the other side is getting better. And so if you're overheating, the unemployment is very low and inflation is the problem. If you're going into recession, it's the opposite. If they both start going wrong at the same time, now it's not obvious what you do. And that's what keeps me up.

EDWARD LAWRENCE: So it sounds like then you maybe don't think that this is that one time price increase due to tariffs that we saw earlier.

AUSTAN GOOLSBEE: I want it to be. That's what I hope it is. And I hope that the impact of that one time increase is moderate or modest in size. That it stays in its 11% of GDP lane. The things that start making me nervous are when the tariffs begin applying to intermediate goods. As I said before, now, it's getting out of its lane and it's raising costs on production.

If we were to see continuation of what we've now seen for a little bit, which is inflation rising in services, it's very hard to explain why services inflation would be rising from tariffs. And that would make me nervous that it's not a one and done. And then the other thing is that's all premised on it being one and done. And this is so far not been one and it doesn't seem done. So we need to think about that a little.

EDWARD LAWRENCE: I'm going to get the audience questions for you.

AUSTAN GOOLSBEE: Oh, I thought you were going to get out in the audience.

EDWARD LAWRENCE: I'm getting out of here.

AUSTAN GOOLSBEE: I was like, good for him. Town Hall style.

EDWARD LAWRENCE: Let it populate. Let's see. Seems like-- there we go. Now, you mentioned immigration turbulence affecting how informative the unemployment rate is.

AUSTAN GOOLSBEE: Not the unemployment rate, the payroll jobs number.

EDWARD LAWRENCE: Have you heard from your farm contacts related to that, in terms of whether immigration actions are affecting their operations?

AUSTAN GOOLSBEE: Yes. We were in Milwaukee and there were some folks representing agriculture in Wisconsin and another in Michigan. And in those two states, there was some discussion that, though they still were not saying that they had seen it affect them yet, they were expressing real concerns that if was done in a ham-handed way, that there might be a massive agricultural labor shortage right as we went into the harvest time.

EDWARD LAWRENCE: So I said to you, I'm not going to get political. This question did. So here's the next question for you. How concerned are you about the loss of independence of the Fed from the current political situation?

AUSTAN GOOLSBEE: It's interesting you call that political. Because historically, that issue has not been political at all. Everybody, but I've only been at the Fed, I haven't been here three years. I was 30 years of research economist. The economists are basically unanimous that it's extremely important that the Central Bank be independent of political interference when setting the interest rates. And that's not just rooted in some economic theory. It's just rooted in look out the window at places where they don't have it. What happens, of course, is inflation is way higher, if the sitting government can say, we want you to cut the interest rate. We want you to cut the interest rate.

I have concerns. I think a lot of the-- I'm uncomfortable with a scenario that we're going to explicitly call for getting rid of Fed independence. And you've seen major government officials say, some of them, that a group of faceless bureaucrats should not be setting the interest rate. That that should be set by the administration. I would just caution everybody to go look at places where that's what happens, and see what the outcomes are.

EDWARD LAWRENCE: On tariffs. There's one. So, what indicators do you look at to figure out if tariffs are jumping outside that 11% lane?

AUSTAN GOOLSBEE: Partly, it's what are the tariffs applying to. So, if they're applying to parts, components, supplies, intermediate goods, it's getting out of the lane. And now it's just a question of well, how big is it going to be? And how much is it going to get inflation? And the second, I'd say, is looking at these other components within the inflation series. If you start seeing it in services, you should start getting more nervous, in my opinion. Because that's a far smaller import content. That's probably the main way.

EDWARD LAWRENCE: So on inflation, how much of the slowing in disinflation is caused by the tariffs and other policies versus the business cycle?

AUSTAN GOOLSBEE: The slowing of the disinflation has now at this point reversed. It's like we got so many negatives. That's not the disinflation shrinking. Inflation's going up. OK. At this point, disinflation--

EDWARD LAWRENCE: So I guess the premise is how is tariffs how much of it is from business cycle?

AUSTAN GOOLSBEE: I would say most of it feels like it's from tariffs. And I determine that by it's mostly been concentrated in goods prices. And if you plot out at a granular level all the manufactured goods by import content, how much inflation is up is a very strong positive relationship. The more tariffable import content there is of the good, the more inflation has gone up.

So I think most of it has been that. That's why I'm still closet optimistic that if they were to stop adding new tariffs, and this thing could work its way through, that it has the potential to be one and done. And the inflation rate might come down. But my unease is that is the very team transitory argument of 2021.

That people thought, hey, a bunch of this inflation is coming because the supply chain is getting disrupted. So they'll probably just fix that, and it'll be gone in six months. And that's why-- and the Fed were not the only ones thinking that. A lot of the private sector forecasters were saying that. And it just proved to take way, way longer than they thought it was. I wasn't there then, so don't blame me. But that was the root of a mistake. This

EDWARD LAWRENCE: Is a good one. So what's the favorite part of your job and why?

AUSTAN GOOLSBEE: Ha ha. My favorite thing that I discovered new, I mean, I guess I have two. One I expected to like, and that is if you go to the FOMC meeting and you are a econ nerd, it is just about the coolest thing in the entire world. And it was like, you're going in to this huge room, the biggest table you've ever seen in your life, and everyone sits around the table.

They drop the shades so they can't be spied on. And we're going to go around the table and Jay Powell is going to be like, here's what I think about the economy. And then, Governor Waller, what do you think about the economy? And one by one by one. And it's really important and meaningful.

And I say without irony, I really think that in the 21st century, that body is the greatest deliberative body in the world. And every body takes the job extremely seriously. You can see in the minutes, can see in the word for word transcripts, it's not about politics. It's not about anything besides the economic outlook and the data. So that part I love.

And then the one that I didn't expect, knew nothing about, is we got like $30 billion of cash in the basement, and we're running it in and out every day and pulling the counterfeit. And I was like, they gave me the tour. And I was like, what is this. Look at this. And I love that. I love going down and seeing cash. And they did their annual review. It has a smell, too. You went in and did the tour. I really like that smell.

EDWARD LAWRENCE: What's the smell?

AUSTAN GOOLSBEE: The smell of money. It's the smell of money. It's the ink. Yes, it's the ink.

EDWARD LAWRENCE: So in the nerd vein, you talked about around the table, anybody have a PowerPoint presentation? Have they gotten technical with those presentations?

AUSTAN GOOLSBEE: No, no, no.

EDWARD LAWRENCE: It's just it's pure old school. This is what I think. I like.

AUSTAN GOOLSBEE: I don't think it's a violation because I'm not word for word saying what I said in the meeting. But I like to come to the meeting with a little trash talk for the seventh district of why we're the greatest. And I'll have some examples. One year, it turns out 90% of the edible pumpkins in the United States are grown in a 100 mile radius of Peoria, Illinois. And we had a FOMC meeting on Halloween. And I was like, there wouldn't even be Halloween if it wasn't for the seventh district. I went through.

And one of the things it turns out the world's largest corn maze is in Illinois. And I went, my wife and I went, we did the corn maze. It took us several hours to get through it. It was 10 miles of trail in there. And I brought a photo of it. And I held it up. And I was like, right here is the map. You don't think I went.

It was like, World's Biggest Corn Maze. And I had the thing. And the secretariat of the FOMC was like, you raise that up, and you introduce that, we now have to take a photo of that and put it in the minutes. So after five years when that comes out, you're going to see the photo. And it has a theme each year. It was John Deere was the theme. And it was like, the maize was through John Deere's nose. And then there was a big tractor plowed in the corn.

EDWARD LAWRENCE: OK, so back to the jobs. Reel this in. So we've seen a big fall off on the monthly job creation data in recent months. You don't seem too concerned about that. The question is Why

AUSTAN GOOLSBEE: Well, I don't want to overindex on that. This to me, a large component-- and I was saying this before we started getting the numbers. So I feel perfectly comfortable saying, we learned in '23 and in '24 when the same dynamic was happening the other way. We were getting really big jobs numbers, and there were some people publicly saying, if we have job numbers this big, we are about to overheat. That must be a sign that we're beyond where we need to be. And inflation is about to come zooming back.

And I cautioned at that time, hey, wait a second. We're having all this immigration. The labor supply is not really observable. So just don't only rely on that one number. Don't overindex on that one number. Pay attention to all these other rates. And if they all start saying the economy is overheating, then the economy is probably overheating.

And so as we came into this, I said, if we get a big crackdown on immigration, so extreme, perhaps that net negative immigration. Don't come back and overindex. And say, oh, the monthly jobs numbers are much smaller than what we anticipated. Because that will be just like what happened the other way before.

So look at all the rates. And if you see the unemployment rate going up and the vacancy rate coming down and the hiring rate falling and the layoffs begin, then that's what normally happens when the business cycle slows down. So far, that is not at all what's happened. Those other four measures have been pretty stable. The only one that's getting worse is payroll jobs numbers. And before that started happening, we said you know what may start getting worse? The payroll jobs numbers because of immigration. So that's why. I don't mean to make light of it. I just want to look at more than one--

EDWARD LAWRENCE: And in that vein, we have a half glass empty, half glass full. This is a half glass empty question. So you said that the labor market has been weakening, but not falling apart. What would the data need to look like for you to be concerned that it's actually falling apart?

AUSTAN GOOLSBEE: I mean, historically, it doesn't have to follow the same patterns of history, but it's almost definitional, you see an uptick of layoffs. So you start seeing companies shedding workers. And when that happens, it does tend to happen quickly. And that would be one of the telltale signs.

The weakest part of the rate based measures, the unemployment rate is up a little, but it's still historically pretty low. The vacancy rate is stable and pretty high. Certainly not what you would expect if it was the beginning of recession. The hiring rate is low. We are in an unusual, low hiring, low firing kind of environment.

And you can sense that frustration of new college graduates and young workers that it's hard to find a job. Their feeling is correct. The data do reflect that. It's just that doesn't look exactly like previous downturns. Without layoffs, it's pretty unusual.

EDWARD LAWRENCE: So how do you prepare for your FOMC meeting?

AUSTAN GOOLSBEE: We have, I say the best, but everyone would agree, one of the best research departments in the entire Fed system here at Chicago Fed. And we have a extensive groups. There are different classes of information. Class III, class II, class I. Class I is like the holiest of holies if we're going to talk about the statement and what the rates are going to be. That's a small group.

We have a large meeting where the research department has prepared briefings, some on specific topics that they've been working on, some on the forecast. If it's a quarterly, if it's one of the meetings where we have to come up with the quarterly SEP dot for the dot plot, we will work on that.

And then we will progressively shrink the group to prepare the statements. At the FOMC meeting, it's always two days. Day one is about the economy. Day two is about rates. And so we'll prepare stuff about the economy and some stuff about rates.

EDWARD LAWRENCE: So how do you prioritize then what's first when you make your argument?

AUSTAN GOOLSBEE: Well, we start with the economy because that's going to come first. And then we go to the rates.

EDWARD LAWRENCE: But the rate's in the economy though.

AUSTAN GOOLSBEE: It depends--

EDWARD LAWRENCE: If you lead with you lead with jobs--

AUSTAN GOOLSBEE: It totally depends. It totally depends what's happening. What are the conditions. So right now, I feel like we've got two rather compelling ideas that we want to chew on and sort through. One is where are we in the labor market? Are these poor monthly job numbers reflective of immigration? Or are they a sign that other things are deteriorating? And we might plug into, not just the labor economists when doing that, one thing you might say is, well, if we were slowing, shouldn't you go look at the interest rate/cyclically sensitive sectors of the economy?

Because if it's the business cycle, business investment should be going down the tubes. Consumer durables purchases should be low. Housing construction be really weak. Two of those three, that's not happening at all. Business investment is actually quite strong. Consumer durables investment is at the least stable. When we talk to the auto folks, they're kind of finding remarkable how resilient it's been.

Housing construction has been weak, but it has been steadily weak. It hasn't deteriorated. So that's how we do it.

EDWARD LAWRENCE: All right. Austan Goolsbee, thank you. That's all the time we have.

AUSTAN GOOLSBEE: That's all the time.

EDWARD LAWRENCE: Appreciate it.

AUSTAN GOOLSBEE: Thank you for coming to our conference.

EDWARD LAWRENCE: You said transitory.

AUSTAN GOOLSBEE: I said transitory. And it was. Thank you again. I appreciate it.

STEVE EDWARDS: Please join me in giving another round of applause to Edward and Austan. Thank you so much.

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