In January, Austan Goolsbee became president and chief executive officer of the Federal Reserve Bank of Chicago. In that role, he’s also a voting member this year on the Federal Open Market Committee, the Fed panel that sets the federal funds interest rate. Before taking over at the Chicago Fed, Goolsbee was a professor at the University of Chicago Booth School of Business, as well as a member and later chairman of former President Barack Obama’s Council of Economic Advisers.

“Marketplace” host Kai Ryssdal spoke with Goolsbee about inflation, credit conditions and Federal Reserve communication. The following is an edited transcript of their conversation.

Kai Ryssdal: What’s your gut on this economy right now?

Austan Goolsbee: Still waiting to see whether there are other credit shoes to drop, I’d say. Not in the crisis sense, but in the how much squeezing is going to be coming up from the bank side. I think it’s going to matter for whether this economy is going to slow down. Everybody’s forecasting some growth slowdown for the second half of the year. How intense that will be, it’s gonna depend a lot on the financial part.

Ryssdal: I’ll be honest with you, I did not expect to hear credit conditions being the first thing out of your mouth.

Goolsbee: Yeah, I mean, it’s because that’s been the order of the day. The job market is the by far the strongest part of the economy, still getting really unprecedented numbers. And inflation, there has been some improvement. But in a way, that’s the worst part of the economy that’s proved more persistent than for sure we wanted a year ago. And this is a problem, if you look at the eurozone, inflation is about 7%. The U.S., it’s about 5%. So there are a lot of countries trying to deal with these similar issues.

Ryssdal: You gave a speech last week, and you said, in talking about credit conditions and what the Fed might do, you said, it’s proper to be cautious to sort of see how things play out. And everybody’s interpreting that as you saying, “You know, what, let’s take a pause on raising rates.” Are we reading you the right way?

Goolsbee: Well, I mean, we still got a couple of weeks before the actual meeting. So if anybody imputed some specific basis points of what I was for, that’d be inaccurate.

Ryssdal: We all did. We all imputed that.

Goolsbee: I don’t know. I can’t speak for others. My message is: be prudent, be patient. The tightening of credit conditions, if they happen in a — doesn’t even have to be a credit crunch, and for sure, it doesn’t have to be a financial crisis. If banks are pulling back, it behooves us to pay attention to the data and ask, “How much of our normal monetary policy job is getting done for us by the credit conditions?”

Ryssdal: Credit conditions aside, what other data are you looking at? What else do you need to see to understand that inflation is moving in the right direction, and that there is, I’m gonna use the phrase even though it’s kind of fallen out of fashion, there’s a possibility of a soft landing?

Goolsbee: Transitory, soft landing — there’s a series of words you’re never supposed to say, Kai! You’ve broken the rule. Look, I’ll tell you the things that I look at. And I’ll tell you a couple that I think we should stop looking at. The ones we should look at are the month-to-month inflation. As you know, when we quote the number, we tend to look backward for a year. But of course, that’s not an indicator of what’s happening instantaneously on prices. So the month-to-month inflation increment, and especially core services, not including housing, I would say. Because we have a pretty good idea that housing kind of lags, and that the components of that will likely mean it’s gonna start coming down in the near future. The thing that I think too many people look at is wages. And the reason I think it’s a mistake, is that if you look historically, the data show that wages are not a leading indicator of prices. They actually lag prices, so you can get, at moments of transition, you can really get yourself twisted into a pretzel that you don’t want to be.

Ryssdal: Not the Jay Powell is the be-all and end-all, but he talks about wages all the time. Do you think your view is shared amongst other members of the Federal Open Market Committee?

Goolsbeee: I definitely do not speak for any other members of the Federal Open Market Committee. I’m a huge fan of Jay Powell, and I admire his thinking. I think, for sure, wage growth and price growth are tied together. What my comment, I realize it’s a little bit in the weeds, but it’s just the question of are wages a leading or a lagging indicator of price inflation? The thing that we should be watching in the here and now over the next two weeks or so before the FOMC meeting, I think, are on the price side and on the credit side.

Ryssdal: Step back for me for a minute, Austan, and let’s talk big picture here. As you said in the Chicago speech, and you’ve certainly said elsewhere, these are wildly uncertain times. We’re still recovering from the pandemic, in terms of the macro economy, there is the war in Ukraine, the labor market, who knows, and this economy and the supply chain and all of that stuff. How much does that affect how you and your colleagues on the Federal Open Market Committee are thinking about what to do? Because it seems to be a confusing time.

Goolsbee: Yes, at the least, it’s a confusing time. It definitely affects my thinking. It’s super confusing, looking as we come out of a business cycle that really didn’t look anything like any previous business cycle. Manufacturing did not lead it. The cyclical components of the economy were not the things that went down in a recession. It was going to the dentist and a bunch of stuff that’s usually recession-proof. Now, there’s pent up demand for these services. Are they even influenced by the interest rate? We don’t know that. So I think everybody’s got to take a step back, as you phrased it, and just try to get a handle on, are we back to normal? Or are we in some, some in-between state? Or is this what the world is going to be forever?

Ryssdal: Well, answer your own question. Are we back to normal? This is the easiest interview ever, answer your own question, Austan Goolsbee. 

Goolsbee: The answer is yes. We are a yes to many of those. And I guess I still think, “Go gather all the data that you can gather, look at more series than you normally need to look at.” That’s what you do. If you’re an old-fashioned data dog like me, in a moment of uncertainty, what you do is go sniff things.

Ryssdal: This seems like an appropriate point in this interview to ask this question: You have a more informal speaking style, shall we say, then most of your colleagues amongst the Federal Reserve officials. I wonder, I mean, look, you’ve been at the national level in economic policy for a long time going back to the Obama White House. So this is not your first rodeo. I wonder though, now that your words arguably carry more weight, has that changed? It obviously hasn’t changed how you communicate? Has it?

Goolsbee: Oh, I think it has. I might be irreverent, but I’m less so than I was before. And I’ll take that as a, I’ll take that as a caution. And I appreciate you giving me that caution. 

Ryssdal: No, look, your speech in Chicago the other day was the first, and all apologies to all of your colleagues, it’s the first economist speech I’ve watched in a long time that actually had some laughs and was, you know, digestible. So that matters, right? What the Fed says and how it communicates matters.

Goolsbee: Look, I hope for the Fed that we can at least be understood. There’s a lot of misinformation about the Fed. So I take it as a compliment. I’m sure our media folks are going to be sweating. Every time I stand up, they’re like, “Oh, no.” But let us drive as a Federal Reserve System to explain why the Fed is especially important at times like this. And the law gives the Fed a job: Stabilize prices, maximize employment. That’s the job. And as I say, it’s not, there’s nothing in the job description about pay a lot of attention to the stock market or be as opaque as possible. There’s nothing in there about that. Let us all embrace the mission of the Fed, and I think we’d be better off.

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