Detroit Economic Club: A Conversation on the Economy and Monetary Policy

STEVE GRIGORIAN: Ladies and gentlemen, I'm Steve Grigorian, President and CEO of the Detroit Economic Club. Welcome to today's meeting, and I especially want to welcome our DEC members. If you're not a DEC member yet, just give me three seconds to convince you. Your next friend, client, prospect, job is right in this room.

If you're not a member, we encourage you to become one. You can do so at econclub.org. And in fact, if you want to become a member today, we'll give you a free event ticket through June. And if that's of interest to you, see Megan on the way out. She'll be at the registration desk.

Just so we don't disturb the program, I'd ask you to kindly silence your cell phone. And if you've been with us before, you know that we always get started with a pledge and a prayer. So please stand and join me as we honor our country with the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation, under God, indivisible, with liberty and justice for all. And kindly remain standing as our invocation today will be delivered by brother Robert Wotypka from the Capuchin Franciscan Province of Saint Joseph.

ROBERT WOTYPKA: Thank you, sir. Good afternoon, everyone. This is my first DEC event. I feel very welcome. I was doing an outreach event at an insurance company and walked in and heard somebody whisper as I was walking in, is that a Catholic priest in our break room?

[LAUGHTER]

I think she might have felt a little bit at unease. So I hope my remarks, which are rooted in my faith, do not make you feel ill at ease. I hope that we have a quantitative easing here in the room.

[LAUGHTER]

I root my remarks in God, who is good, and true, and one. All good prayers begin with thanks. We give thanks for the ability to be together and to learn together. We give thanks for the space that the Detroit Economic Club creates. We give thanks for our city and for all cities.

They are visible signs of our desire to be neighbors to each other, to learn from each other, to share, and trade, and solve problems, and lift each other up. We give thanks for the science of economics, which seeks to learn from the past, make applications to the present, and plan and build for the future. And this is the experience of our ancestors reflected in our Holy books. We ask our loving Creator to bless this gathering, let our time here together form us, and strengthen us to seek and build the common good. Amen.

STEVE GRIGORIAN: Thank you, brother. A couple of special thank yous to Lawrence Tech University and Detroit Public TV for live streaming today's meeting. And a special thank you to our good friend Sandy Berra for his assistance in making today's meeting happen.

If you've been with us before, you know we love having high school and college students with us each and every meeting. Today is no different. They're here courtesy of our generous corporate sponsors. Their morning began with a private reception with Austen Goolsbee, so let me take a moment today and recognize our students and sponsors.

We've got a group of students from Wayne State University Econ Club. Thanks to the Satish and John Bank of Ann Arbor. Hazel Park High school is here thanks to Nicole and Ghafari Associates.

Lake Orion High School-- Eric and the good folks at Comerica Bank, and Eastern Michigan University students thanks to Urban Science. And I saved a special one for the end. We've got a group of students that got up at 6:00 AM from Lake Superior State University to drive down specifically for this meeting. So how about round of applause for all of these folks?

[APPLAUSE]

All right, couple of things on your tables quickly-- our seasoned lineup. We are loading up that lineup. We've got something for everybody in two weeks, I think.

November 29, we'll be right back in here in this room for U of M president Ono. And he's excited to talk about all of their investments in the city of Detroit. We just announced yesterday a meeting on December 13 with Governors Nixon and McCrory.

They'll be representing the No Labels group. And it's already time to start talking about January events. It's our annual and very popular Michigan Economic Outlook Event.

That'll take place on January 16. So tons more on our website. Get your tickets. And we hope you can join us as much as your schedule permits.

I also want to take a moment for a second thing on your table, and that's our sponsors and partners. Make no mistake. We would not be here if it wasn't for their generosity. So thank you to those folks in the room who are part of those organizations.

And of course, I'd love to talk about the history of the Detroit Economic Club, its incredible 89-year history of speakers that really tell the history of our country. In November 14, today, is a popular date in our history. Austen, you now join a distinguished list of 14 others who spoke to the DEC on November 14.

And when I say distinguished, listen to this-- 1938, J. Edgar Hoover visited the DEC. His excellency Shimon Peres from Israel flew to Detroit to address the DEC in 1986-- tons of CEOs, including those from Oracle and Knight Ridder. So today, Austen, we are pleased to add you as our 15th speaker on this day in DEC history. Congrats, and thanks for being with us.

[APPLAUSE]

And finally, use your smartphone. You can be part of today's program. We want you to take lots of pictures and use the hashtag #econclub to share with your social media. And you can also submit a question for Austen using the QR code on your table. And those questions are going to make their way to our presiding officer, who is about to go to work.

Linda Hubbard is the President and COO of Carhartt. She is a board of Director of the Federal Reserve Bank of Chicago. She is a DEC Board member and amazing supporter of our organization, a really great friend to me personally, and a big-time supporter of so many things in our city, state, and region. Ladies and gentlemen, please welcome Linda Hubbard.

[APPLAUSE]

LINDA HUBBARD: Thank you. Thank you, Steve. And good afternoon, DEC members and guests. I have the honor of introducing our speaker today. Austen Goolsbee is the 10th president and CEO of the Federal Reserve Bank of Chicago.

Before taking office at the Federal Reserve Bank of Chicago, Dr. Goolsbee served as the Robert P. Gwinn Professor of Economics at the University of Chicago Booth School of Business. Prior to that, Austen served as Chairman of the Council of Economic Advisors from 2009 through 2011, where he was a member of President Barack Obama's cabinet. Dr. Goolsbee has a PhD in Economics from MIT and a BA and MA in Economics from Yale University.

The moderator today is our very own Sandy Baruah. Sandy is the President and CEO of the Detroit Regional Chamber, the third largest Chamber of Commerce in the nation. Sandy joined the Chamber in 2010 after a distinguished career in Washington DC, where he served in President George W. Bush's administration. Ladies and gentlemen, please give a warm Detroit Economic Club welcome to Austen Goolsbee and Sandy Baruah.

[APPLAUSE]

SANDY BARUAH: All right. Good afternoon, everyone. Welcome to Detroit.

AUSTEN D. GOOLSBEE: Thank you, Sandy.

SANDY BARUAH: You know, our football team is doing better than yours.

[LAUGHTER]

AUSTEN D. GOOLSBEE: I prefer to think of it as you may be winning the division, but we are winning the NFL draft.

[LAUGHTER]

SANDY BARUAH: Well, that's a strategy that worked for us. All right, let's jump right in. You're the president of the Chicago Federal Reserve Bank. Explain-- we have a lot of students in the audience-- what is the Federal Reserve Bank's role? What does it do? And briefly, how is it structured?

AUSTEN D. GOOLSBEE: OK, I started in January. I was a professor for 28 years, so I had been outside observer of the Fed. The Fed is created in 1913 with the Federal Reserve Act.

It is set up as a Federal Open Market Committee that votes on the interest rate, and that's the most public part of the job. There's a DC Fed that is largely about that and the financial system. And then there are 12 Reserve Banks around the country who are also a bank to banks.

And we do. bank supervision, and we provide financial services. We have between-- the Chicago Fed is mostly Iowa, Wisconsin, Illinois, Michigan, Indiana. The heart of the Midwest is the district.

We have more than $40 billion of cash in the vaults in the Chicago and Detroit buildings. Those are where our two branch buildings are. And we provide cash to the ATM machines of our member banks, and we do wire transfers, and direct deposit, et cetera.

The Fed's system as a whole has a dual mandate that is in the Federal Reserve Act by law-- maximize employment and stabilize prices. And so that's what the Fed people call the dual mandate. And that is what motivates.

That's our job. It's not politics. It's not fiscal policy of what should taxes be or what should the government do. It's just, how do we use the interest rate and other monetary policy tools to stabilize price and maximize employment?

SANDY BARUAH: And just to be clear, before we move on, you're not part of the Biden administration or any other administration.

AUSTEN D. GOOLSBEE: Correct.

SANDY BARUAH: The Federal Reserve Bank system sits independent from the Executive branch and the Congress.

AUSTEN D. GOOLSBEE: Yes. And the Fed is independent, is explicitly not political. And the Reserve banks are separate entities. They're not government entities. They each have a board.

Linda is on my board, so she's my boss. If you see me acting real nice to Linda-- yes, ma'am, anything you say-- that's because we have independent bosses. We're not in the administration, and we're not political appointees.

SANDY BARUAH: OK, great. All right, you mentioned the dual mandate-- maximize employment, minimize inflation. Speaking of inflation, we had-- at least, in my opinion-- a really solid CPI report this morning. What did you see in today's CPI report?

AUSTEN D. GOOLSBEE: Let me pause. Let me say, maybe I should take three minutes, and I'll give you an overview of a A, B, C of what's on my mind. And it will end us-- C--

SANDY BARUAH: It makes my job easier. That's awesome.

AUSTEN D. GOOLSBEE: --will land us on CPI and what are we watching. OK, A, the normal dilemma-- I told you the dual mandate-- the normal thing facing central bankers is that the job is not easy. Any central banker says the job is easy means there a bad central banker because that means they're coming with an ideology of, oh, I just do the same thing all the time. That's not what makes the job hard.

What makes the job hard is if inflation gets up like what happened now-- the employment side of the mandate's been going great, and inflation has been going less than great. Every time that the Federal Reserve has gotten inflation down significantly, there's been a massive recession to do it. And that's not just the Fed. Around the world, same thing. If you have to get inflation down a lot, they only can do it with a great deal of pain.

The single largest drop in inflation in a year, other than wartime demobilization, was, of course, under Paul Volcker in 1982. The CPI inflation rate fell by more than 4% in a single year-- four percentage points in one year. That's the most ever. The thing that's bizarro world is that, in 2023, we may surpass the biggest drop in inflation peace time in 100 years.

And unlike 1982, when the unemployment rate literally almost got to 11%, and we had a horrible recession to do it, the unemployment rate has not even gotten above four. And four is the level that, before all this happened, there were a lot of people who said four is the minimum. You literally can't get the unemployment rate below four.

We will have gotten inflation down perhaps more than in any other year in a century without having a recession. That's what I call the golden path. That's more than a soft landing.

That's the softest of all the soft landings. And I think, one, it's because we've finally gotten positive supply shocks and the positive developments counteracting the COVID-related shortages, supply chain, labor supply problems-- all of the things that we've known about and lived through. We're finally undoing that and getting the benefits.

Two-- did I say one or A? I think I said one. Two, we've had strong productivity growth, which is like the magic beanstalk beans for the economy. If you get productivity growth, you can have faster income increases, faster wage growth, faster GDP without generating inflation. And so we partly had that.

And three, unlike previous episodes of inflation, the expectations in the marketplace of where inflation will be one year, five years, 10 years from now-- those inflation expectations did not really go up even as actual inflation got to 9%. And that, I believe, is a testament to the credibility of the Fed itself. Even as the inflation rate was hitting 9%, the Fed said, we have a target, and we are going to get inflation back to the target. Whatever that takes, we are going to do that. And the market believed it.

Paul Volcker was my great mentor and friend, and I worked with him in the financial crisis. And there's no doubt he would have been very pained to see inflation get to 9%. And when I took the job at the Chicago Fed, his widow Anke, who is a friend of mine, gave me a few items that were Paul's and that I have in my office-- his name plate from the New York Fed, a copy of the first edition of Keynes General Theory. And she said, Paul would have been so proud, and I know that you're going to help fix this mess. So from that, I was like, oh, boy, the--

SANDY BARUAH: Pressure's on.

AUSTEN D. GOOLSBEE: The pressure is on. While I believe Volcker would have been pained to see inflation hit that target, I believe that the fact that inflation expectations never rose even as inflation got to 9% and that has allowed us to get on to, perhaps, the golden path is a testament to the credibility of the Fed that he established. I think he would have been proud that that is true, that all of the pain that we had to go through-- and what made the Volcker episode as painful as it was is you didn't have to just beat inflation.

You had to beat the expectations too to convince people that we were serious, that we would commit to get it down. That's fulfilling the legacy. So those are the reasons why I think it's been a good year for the Central Bank, for the Fed in 2023. And I want it to continue. That was category A.

Category B-- there's still a disconnect between the data and people's feelings about the economy. And you feel that, for sure, from individuals where the answer to the question, how's the economy? Horrible. How are your finances? Actually, quite good. There's never been a bigger gap at the individual level on the surveys. But it's also true in business.

So we got a GDP growth number of almost 5% growth, which is more than double the trend growth rate. It's literally not sustainable. That booming number-- we talk at the Chicago Fed-- all the Feds-- but at Chicago for the Beige Book, we talk to business people all the time. We have regional roundtables. We gather that information, and that goes into the FOMC deliberations.

Nobody that we talk to-- and I mean, nobody-- we talk to all these-- nobody was like, wow, this feels like a 5% growth economy. I mean, 5% is booming. And that wasn't what business described.

They describe, wow, these interest rates seem really high. We're going to have to recalibrate. Are we investing? Do we want to build a new factory if rates are going to be like this?

So I don't want people-- I encourage people not to get overly amped up about quantities data, like if GDP growth is 5%, or if the unemployment rate is 3.9, there is one mentality that says, we can never get inflation down if the economy is growing that fast. That's that means it's overheating. That's not true if you're getting positive supply developments, if you're having the productivity growth that I mentioned.

You can get big quantities without inflation as long as it's coming along with those. So I don't want us to overhype on those quantity numbers. But I will say that this discrepancy between how business feels, how individuals feels, how consumers feel is hard to reconcile with the numbers that we're just trying to figure out what that is.

And then, third, I would just say, so what am I-- I said, don't pay as close of a focus on the quantity numbers as indicators of overheating. What I'm personally looking at is, first and foremost, the inflation itself. That that's the part of the mandate that we have to improve, and we have.

And the thing that I would remind everybody is that before COVID, we were at the 2% inflation target. In fact, we were even below the 2% inflation target. And that wasn't from all the inflation in the economy of every good being 2%.

There were always a fair bit of differences. Physical goods were deflating 100 basis points a year. That is a minus 1% inflation rate for goods for about 10 years before COVID.

Housing was growing about 3%, 3.5% a year. And services, 2 and 1/2% to 3% a year. And those three combined are what got us to 2% on the core. If it's not your world, we don't include-- when the Fed is looking at inflation, we tend not to look at food and energy, which drives my mom crazy.

She's like, what do you mean you don't look-- that's all I pay for is food and energy. But it's because food and energy-- as you know, they're extremely variable, so they don't give you as good of an indication of what's the underlying inflation. So that's why we look at core. It's comprised of those three.

So to get back to 2%, we've got to see it in these three categories. I don't want to offend Brother Robert. That's our price holy trinity.

I appreciated that our opening prayer had a lot of economic content because I try to tell our people internally, I was like, this is noble work. I said, we are doing God's work if God was paying attention to the federal funds rate. Brother Robert said he is, he was, he was. That was great.

[LAUGHTER]

Goods are back to deflation if you look at the prices. We've made a lot of progress on inflation, cut it more than in half or more than 50% of the way back to the target. So far, we've done it mostly by goods returning to minus 1%.

The services part is always slow-moving and sticky. We've known that. And that's come down a little, but not a lot.

The thing that I'm especially paying attention to now over the next six months, let's call it-- the thing that will determine, are we on path to get to target is what's going to happen to housing. And it's a very wonky, in-the-weeds thing. But when they compute the housing part of inflation, it's not single-family home prices.

That's not what it is. They are imputing, what's the rent? If you were renting your house, how much would rents have changed? That's what they're counting as inflation. And that tends to mechanically come through with a long lag because, as the market rents change, it takes a year for that to flow its way through. Housing went way up and has started coming down.

And if you take market measures of rent, they are supposed to imply that, over the next year, housing inflation is going to come down a lot. We've seen the beginnings of that, but that must continue for it to work. So that's what I'm focused on core inflation, the new months of numbers, and especially housing, which brings us to CPI today, which look pretty good.

The overall CPI inflation was 0. The core inflation was around 2/10 of a percent for the month. If you break it out, it's still looking like slow but clear progress on each of the categories.

Goods remain in deflation. Housing coming down. We had a one-month blip where it was like, uh-oh, housing inflation was up, but it started to trend down, and services remaining pretty steady.

SANDY BARUAH: So I'm hearing housing is one of the big pieces that you are looking at in terms of meeting the 2% target.

AUSTEN D. GOOLSBEE: Housing inflation, yes. There's a separate category. There are people who say housing itself is very interest-rate-sensitive, like construction, house building, refinancing mortgages. It's very interest-rate-sensitive. So if you're a demand-driven business cycle person, there can be a tendency of I want to go look at housing starts.

At some times, that's right. My only thing is, at this moment, I'm putting less weight on the quantities measures because I feel like supply developments are coming through. So housing inflation-- that's very front-of-mind for me.

SANDY BARUAH: So I've been in town halls with you where you're meeting with community groups. And a lot of the pushback that I see you getting is from people who are saying, you're raising inflation rates, and this is how that's impacting our community. But it's not just a question of, can we have high interest rates or low interest rates? There's a trade off. Talk about the trade off.

AUSTEN D. GOOLSBEE: You said in inflation, and you could say interest rates, and that's an insight that I hope everyone sees, which is when the Fed raises interest rates rapidly the way we did as a system over the last year and a half, among the fastest increase-- going from 0 to 5.5% effectively in a short period of time-- some things wobble and break when that happens. It definitely involves pain, and there can be a tendency to be like, look at the problems that that's causing. Nobody's refinancing mortgages.

You know, Rocket Mortgage is feeling that. And people who want to buy a house are like, the affordability of the monthly payment is going way up. There's a lot of pain.

The only thing is there's a lot of pain from inflation too. So you can't just--

SANDY BARUAH: More insidious pain.

AUSTEN D. GOOLSBEE: In more insidious pain. I like how you used insidious in a sentence. [LAUGHTER] And the insidious pain of inflation is very real pain. You to ask people, what do you think about the economy when the inflation rate is 9%?

They're like, it's horrible, and inflation is the biggest problem that we face. So that's what makes the job of Central Bank hard. And it's got art and science. And so, as I say, it may be coming. But in the next six months, ChatGPT is not going to replace our job because it's not just a formula that you can predict exactly what to do.

SANDY BARUAH: Black swans are apparently more popular than we ever knew in the last several years. COVID-- a huge black swan. We've had these very serious international conflicts in the last year and obviously very recently.

How do you factor in these black swan events into how you're calculating where to take the Federal Reserve Bank's actions regarding inflation? Because you just said-- and I agree-- we are really poised to have the best and perhaps only really fabulous soft landing that we've ever engineered in American economic history. But these black swans keep popping up.

AUSTEN D. GOOLSBEE: Yes. And look, they have before. The golden path is definitely not a guarantee. In 1990 and in 2001, those were soft landings smaller and easier to pull off than this one, and they were both derailed by external events, external shocks. I call them black swans.

My uncle lived on a rural place, and he really liked animals, and he kept all these animals. And actually, he had swans. And they had two black swans.

He had two swans. And they were so mean. They were the meanest of all the animals.

SANDY BARUAH: So art imitating life.

AUSTEN D. GOOLSBEE: No, exactly. And that is so symbolic of the black swan events. Well, historically, big increases in the oil price are external shocks that we know what they-- they're negative supply shocks. They lead to stagflation.

If geopolitical events-- I try as much as possible, of course, to keep the Chicago Fed out of politics, out of geopolitics, out of any. If their war in the Middle East spread and started dramatically driving up the price of oil, like what happened with the war in Ukraine, we would have to take that into account. And you'd have to say the path was in jeopardy.

If there were further developments like the Silicon Valley Bank and Signature Bank collapses that morphed into credit crunch or financial crisis, that'd be that'd be another style. The slowdown in China-- if growth cratered in China, even though Chinese exports and import-- Chinese trade with the US is a small share of trade. And for the most part, trade itself is only 15% of the US economy.

There's a mechanical way that you could convince yourself it doesn't matter for US growth. I think that's naive. I think if the second largest economy in the world started imploding, I feel like that would, either through the freak-out channel or some other channels, I think we'd have to confront that.

But that is the-- now you see the part of my job that I'm like, don't blame me. But they ask us every three months to put out the statement of economic projections where we publicly have to commit to forecasts, not just in the immediate term, but for a couple of years. And I don't like that process. I feel like, hey, this is just another thing that people are going to be like, two years ago, you said this was going to happen, and it didn't.

SANDY BARUAH: You're talking about the famous dot map.

AUSTEN D. GOOLSBEE: Yeah, that's the dot plot is this SCP. And so the thing that I want you to think about is that people will say, what do you think is the probability that we'll get inflation down? Or what's the probability that the interest rate will be less than what it is today one year from now? The answer to that question is actually, what's the probability that some geopolitical shock will drive up the price of oil? Or what's the probability of some events that have nothing to do with the economy?

What do I know about that? I don't know anything about it. I can't estimate a probability like that. So in the world where external shocks are the thing driving it, that's a hard problem in life to private forecasters or to the Fed. Don't get mad at us. Give us a little leeway because you can see why when external events are happening, it's really hard to forecast.

SANDY BARUAH: OK, we only have a few minutes left here, but I definitely want to get to some local stuff. UAW strike-- how do you see that rippling through the economy-- the higher wages negotiated?

AUSTEN D. GOOLSBEE: When anything happens in the auto industry-- seventh district has, by far, the highest auto production of all the districts in the country. And so just like when anything happens with oil, they're like, call the Dallas Fed because that's their specialty. Something happens in autos. They call us.

So I told our people, we better have something to say, or we're going to look like idiots. But fortunately, we got Kristin. We got Martin. We got we got a lot of expertise about the Detroit economy about autos.

My only nagging fear is they got to prove this, right? They signed the contract. They still got to prove them. We looked at all the auto strikes in modern memory to try to get a handle on if this strike-- how will it affect GDP growth? Will it affect prices? What will happen?

The answer-- I was surprised. Kristin wasn't surprised, but she knows this stuff. The answer is most strikes don't do anything at the National level because most strikes don't last very long.

So if the strike lasts for a month, the GDP goes for a quarter. And so it's like, yes, it goes down for one month, and then it comes back for a month. And by the end of the third month, they're where they were before, and likewise in prices.

Where there was a little uncertainty over issues like, is the supplier base in worse financial circumstances than normal so they wouldn't be able to respond as quickly? Is the lack of inventories relative to historical going to mean that it would have price effects? I think, mostly, it's not rippling through the economy because the strike didn't end up expanding super far. The big three's share has come down over time. And the rebound has proved OK. So knock on wood-- none of these are would, but knock on wood, that's where it remains. If they did not approve the deal and the strike came back and expanded, then we'd have to go recalculate.

SANDY BARUAH: OK, awesome. So we are going to have to finish here. I have a whole handful of questions that we didn't get to. But first of all, Austen, it has been a pleasure to have you in Detroit.

Austen and I have a little bit of history dating back to the transition between President-elect Obama and President Bush. I'm delighted in your role. And it's been an honor to serve on your board.

AUSTEN D. GOOLSBEE: He said history. It was good history. It wasn't like a beef.

SANDY BARUAH: Well, it was an ugly time. It was an ugly time in American economics.

AUSTEN D. GOOLSBEE: Yeah, look, it was financial crisis, but it was a model of the American system. The Bush administration and the Obama administration were not on board ideologically. It was a crisis facing this country, and the seriousness with which you guys took the transition and the preparing of us for the coming in in that moment was really exemplary.

SANDY BARUAH: Well, ditto. And I'm so glad you're in this role. And with that, I'm pleased to welcome back our presiding officer, Linda Hubbard.

[APPLAUSE]

LINDA HUBBARD: Thank you, Sandy. I appreciate all the great questions. And, Austen, I've got some more for you, some from the audience that were submitted ahead of time and some as the lunch has gone on. The first question would be just your reference in your opening remarks, you talked about productivity growth has picked back up and that, if it's sustained, we'll get faster growth without generating inflation. So how do you think our productivity now compares to where we were pre-pandemic? And how can we continue to generate faster productivity growth?

AUSTEN D. GOOLSBEE: OK, so productivity is output per hour. Think of it that way. The one thing to know about productivity numbers, if you don't already, is they're extremely noisy and variable. So you always got to be careful saying, hey, this quarter, look at how great it is because next quarter, it could be awful.

The level of productivity and the growth rate of productivity are two different things. In the economist mind, how much we're paid-- our wage is tied to our productivity. So if productivity is growing, then wages can be growing. If productivity growth is stagnant, then even if the level is high, our wage growth is going to be stagnant.

In a way, it's a special sauce and a secret. We don't really know where productivity growth comes from. There's an old Nobel laureate, Bob Solow, whose quote was about innovation and productivity growth. And he said, the economist's problem is whenever we get down to the actual sources of growth, we always go down in a blaze of amateur sociology.

And there is something to that. It's like, does it come from culture? It comes from innovation-- we know that-- and technological growth. So there are some people looking at this rebound, and they see the '90s and the rise of the internet.

And they're like, ah, it must be AI. AI is-- it can't be that. That can't be what it is. AI is this big so far. There's no way it could explain this.

I think a lot of it-- my hope is that we're just at least going back to the trend growth rate we had before COVID. Through the beginning of the pandemic, we actually have had some pretty substantial drops in the productivity growth rate, and that led people to be like, oh, is it the fault of everybody working from home? They're less productive. And now it's up.

And then they're like, maybe it's because everyone's working from home. They're more productive. I don't know.

Business processes definitely matter. The technology definitely matters. And we should think about that.

I already told you, it's not my role to get into fiscal policy or telling Congress as a boss. I don't have to tell them what to do. As a nation, our investment in human capital, education, technology-- those are all really important historically for the productivity growth rate.

LINDA HUBBARD: OK. So, Austen, this sounds like one of my questions at a board meeting, but since I'm screening them, I'm going to ask it so I can take this back to the office. But the question is, we're starting to see the inflection point in consumer spending as we approach the holiday season. Is there concern this could affect the economy long-term?

AUSTEN D. GOOLSBEE: Long-term, I wouldn't say so. Short-term-- well, it depends what's your long-term, I guess. This season, any one Christmas season is not really an indicator of long-term trends. It feels like in the surveys, people express a pessimism that has a lot of retail and consumer goods people nervous about this holiday season.

And yet-- this goes back to my point B-- you look at the data on durable goods spending, consumer spending overall, it's remained remarkably robust. So partly, that's the long way to say, I don't know. So you could take back to the board, I talked to the Chicago Fed.

He said, nobody knows. But the implication of the divergence is also true. The reason why economists paid a lot of attention to consumer sentiment data is that historically, that was always a very good indicator of how much money they were going to spend.

So if you said, how do you feel about the economy? Awful. Then you would see, soon after that, consumer spending go down. The relationship between consumer sentiment and consumer spending has utterly broken, and we're still trying to fathom why that is. As a friend of mine put it, you've got a lot of really pessimistic people who are spending a lot of money. So we're still trying to balance that out.

LINDA HUBBARD: Thank you. The next question-- so just your thoughts on the bank failures that occurred last spring and any lingering concerns that you might have.

AUSTEN D. GOOLSBEE: Bad. The feeling's bad. I'd been on the job two months. As I said, I've been to two FOMC meetings.

I've already voted to raise the interest rate twice. Took my predecessor eight years to do that. And then we have a collapse of these banks. And I was like, this is a terrible job. What have I done?

And that has ended up so far being the shoe that did not drop that I thought that it would be more of a credit crunch impact from bank failures and might even portend something worse. Consumer real estate, of course, remains an issue of concern for a lot of banks and for a lot of entities. But let's hope we don't--

SANDY BARUAH: Commercial real estate.

AUSTEN D. GOOLSBEE: What did I say?

SANDY BARUAH: Consumer.

AUSTEN D. GOOLSBEE: I just said consumer real estate? No, no. Commercial real estate remains an area of concern, but we're trying to wrap our head around what's the size, what's the timing. Like with a consumer mortgage, if I told you interest rates are high, it would prevent you from refinancing right now. But it's a 30-year mortgage. So in a sense, what matters, if push came to shove is, what's the interest going to be 30 years down the road? That same idea does occur with commercial real estate. How much of it is coming up now?

So I would say, definite area of monitoring and concern, mostly through the credit channel of how would that affect banks, but it hasn't been as bad as we feared in March and April.

LINDA HUBBARD: Thank you. Next question is, could you put in context how the US economy's recovered post-COVID compared to other nations?

AUSTEN D. GOOLSBEE: Better, than anyone else of the rich countries. If you just look at real GDP growth, we're back higher than where we-- not just higher than we were-- higher than where we thought we would be in the forecast made in 2019. So before there ever was COVID, they said, where will we be by the end of 2023? We're better than that. And that's not true in almost any of the other advanced countries.

The other thing is on the Inflation side, inflation went up here. Inflation went up everywhere. And inflation, in a way, has come down the most in the US compared with almost all the other countries.

So that's been good too. Not that that makes you feel-- one time we got in the line at the airport at the ticket counter. And it was clear something was wrong because we didn't move at all.

And just more and more people kept adding behind me in the line. And I was like, well, maybe I feel better because relatively, I'm getting moving to the front. The only problem was no nobody was advancing. So being the cleanest dirty shirt is not always the greatest.

But I do think our recovery has been stronger than we feared, for sure. If you had told us, if we had had it virtual, it would have been virtual, but if we had the Detroit Economic Club meeting in June of 2020 and you said, hey, by 2023, actually, our GDP growth will be above where it was. The unemployment rate will be back down to 3.9%.

Inflation will be high, but it will be trending down. We would have been like, oh, please, yes. That would be so great. And here we are. So let's at least look on the bright side from that.

LINDA HUBBARD: So when you talk about unemployment being so low, but there is a portion of our work-able population that's just dropped out of the employment market, how does that factor into your analysis?

AUSTEN D. GOOLSBEE: OK, so the dropping out of the labor force-- a lot of people talked about that. And that definitely characterized the COVID times. But the thing that I would like to emphasize to everybody is go look at the data now.

It doesn't look like that at all. That's not true at all. And that's one of the most powerful supply developments has actually been the return of the labor force.

So there are a lot of groups. If you look at women in the labor force, highest participation rates ever. Previously disabled workers-- highest participation rates, by far, ever, maybe because of the flexibility in the labor market now.

We got a lot of people coming back in. It's still the case that over a 50-year, 80-year trend, it's been down. We've had a rise of a lot of disability. We've had a prime age men dropping out of the labor force, What they call classified prime age men.

But I actually think this has gone from our biggest weak spot in the economy to at least, not the strongest, but at least an area of strength, that the labor force participation rate has come back more than we would have expected. It's already going to go down because the population is aging, and a bunch of people are retiring. So share of population that's working is trending down, but it's higher than where we would have thought.

LINDA HUBBARD: So a question for you is, how has the Fed evolved over the decades regarding how it tackles economic issues? And has there been any fundamental changes?

AUSTEN D. GOOLSBEE: I'm of two minds because I wasn't at the Fed until January. So I was the annoying guy on the side. Oh, the Fed is screwing this up and screwing that up.

And they were like, OK, mister, let's see what you have to say. I think that the Fed has changed in a couple of fundamental ways. And if you want after to get in, there are some technical ways that it does its job that have changed with after the financial crisis, with the quantitative easing and then quantitative tightening, some unconventional monetary policy-- that part has changed.

In spirit, I think the biggest change over the decades in the Fed's conduct had been a heavy shift to openness and transparency. As much as I love Paul Volcker, his view-- it pained him that there's a press conference that the Fed Chair goes to and gets asked snarky questions by reporters. So what do you think about this? That was not his view.

Somebody asked Paul Volcker after all his decades in the Fed, what one word summarized his Fed strategy? And he said, mystique. So you'll remember, if you're old enough, the Greenspan years where they said, so if I understand you correctly, you're saying this. And he said, if you understood what I said, then you weren't listening.

[LAUGHTER]

The Fed has shifted very much to explaining the target, explaining how it's doing things, explaining what it-- they made the SCP public. So here are the forecasts. Here's what we think is happening. And look, any kind of openness comes with complications. But overall, I think that that's very much been for the good.

LINDA HUBBARD: Thanks, Austen. So we're going to move to some less-than-substantive questions right now. Affectionately it's called the lightning round. And so I would ask, what profession, other than the current one you're in, would you like to try?

AUSTEN D. GOOLSBEE: Oh, I said-- this is kind of embarrassing-- but I said that-- somebody asked me-- I was in the Obama administration, and they said, if you weren't doing this job, and you weren't an economist, what would you be? And I said, well, I would either be the host of The Daily Show. Or else, I would like to do car commercials, like doing the voiceover on a car commercial.

[LAUGHTER]

And then, you know Tavis Smiley? He's got a radio show. Tavis Smiley was like, we have auto sponsors on our show. So why don't you go make your pitch? Do your auto commercial? And I started, and then he said, that was terrible. You're never going to get hired. So I'll still say that, but I wouldn't be able to get the job.

LINDA HUBBARD: OK. So maybe, what was your very first paying job?

AUSTEN D. GOOLSBEE: My very first paying job pre-high school is I was the pricer of the comic books at Ames Used Bookstore. And it has never been equaled. That was the greatest job in the history of 12-year-olds. I was like, oh, I must check the book. I was like, write it in pencil in case. But that was my first paying job

LINDA HUBBARD: OK. So I part of your requirement is to be neutral and, also, that you are a predictor--

AUSTEN D. GOOLSBEE: Uh-oh.

LINDA HUBBARD: --that's part of being an economist as well. And so this Sunday, the Bears and the Lions are playing, both in your district.

AUSTEN D. GOOLSBEE: Both are in the district. And I was over at the Detroit branch this morning, and they printed out a jersey. They put a 2 on it because the 2% inflation target.

[LAUGHTER]

But the Chicago people were on Zoom, and I could hear the hissing coming over the speaker. I was like, OH, it sounds like static. I've been reluctantly concluded that it is not yet Bears' year. So we'll see what happens. We can all agree.

I traveled throughout the-- my first six months, I wanted to go to every state and see the district. And I went to Wisconsin, and they set up for me to go to Green Bay, Wisconsin. And I toured. Yes, they've done great things. They replaced the lead service lines, economic development.

And then it was just like stabs over and over for 40 minutes. How about a tour of Lambeau Field, the Hall of Champions, the blah, blah, blah? And I was just like, there's photos of me from the trip. And when I'm outside on the streets, I'm like, yay, you got it.

And I'm going through the thing. I'm like, [GRUMBLES]. So that was a filibuster. I'm not going to answer.

LINDA HUBBARD: That's fine. Detroit needs a champion, and we're all behind the Lions.

AUSTEN D. GOOLSBEE: Now, our dog at the Detroit branch-- we have bomb dogs that sniff because we run several hundred million of cash in and out of the bank every day, so they sniff the bomb-- moonlights as the bomb dog at the Lions game. So Krill is bringing some magic to the thing. I want to get Krill to come over and visit.

[LAUGHTER]

LINDA HUBBARD: Wow, we are getting not substantial here on these, huh? All right, bring us home-- advice to your 25-year-old self.

AUSTEN D. GOOLSBEE: Ooh, advice to your 25-year-old self. You're getting bald, dude. You better get married quick.

[LAUGHTER]

SANDY BARUAH: I can relate to that.

LINDA HUBBARD: Thank you Austen, Sandy. Steve?

AUSTEN D. GOOLSBEE: Thank you.

[APPLAUSE]

STEVE GRIGORIAN: Austen, if it pained you to be in Lambeau, when we have the Super Bowl trophy here in February, we're going to invite you back to be in the same room.

AUSTEN D. GOOLSBEE: I'll celebrate that.

STEVE GRIGORIAN: All right. So listen, Austen, you are welcome back here any time. And we can't thank you enough for spending time with us today. Sandy and Linda, thanks for your important roles in today's program.

I do have one favor to ask of you all. And that is my job is to get Austen, and we're going to make a beeline to WJR because he's on in about 60 seconds. So please let us get us into that room.

So, ladies and gentlemen, tell your friends and colleagues to join the Detroit Economic Club-- on time every time. This meeting of the Detroit Economic Club is now adjourned. Thank you.

[APPLAUSE]

AUSTEN D. GOOLSBEE: Sandy, that was good. I'm sorry I--