The federal government shut down Wednesday morning, after Congress failed to pass a budget. That means that all nonessential government operations will go on hold until a spending and appropriations bill is passed.

Despite the shutdown, the central bank will continue to run, since the Federal Reserve is self-funded and doesn't rely on congressional appropriations. That said, the shutdown will still have effects on the Fed. One biggie? The economic statistics produced by the Bureau of Labor Statistics and Bureau of Economic Analysis will be put on pause until the government comes back online, and the Fed relies on that data to take stock of the economy and make informed interest rate decisions. 

In other Fed-related news, the Supreme Court moved to allow Fed Governor Lisa Cook to stay in her role, at least until arguments are heard on a case to oust her, which won’t be until next year.

It’s safe to say the central bank has a lot to consider as it approaches its next interest rate decision in late October. 

“Marketplace” host Kai Ryssdal was joined by Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago, to talk all things Fed. Below is an edited transcript of their conversation. 

Kai Ryssdal: I have to start with the Lisa Cook news, obviously. The Supreme Court is letting her stay in the office at least till arguments on this case in January. I really dislike prefacing questions, but I kind of have to at this point. Every time I ask a Fed governor or a regional Fed president, like yourself, about the politics of this economy, the invariable answer is it doesn't affect things at all. It is simply not believable that the tumult around the Federal Reserve and politics right now with Stephen Miran and Governor Cook is not at least somewhere in your mind. Discuss.

Austan Goolsbee: Well, let's separate two different things. One is, what drives FOMC decisions around the table when we're setting interest rates? And there, everyone takes the job extremely seriously, and what drives interest rate decisions is the economic outlook and the data and what the economic conditions are. And you can see that when the transcript will come out, word for word, and you can see it in the minutes as well, that it's not about elections, it's not about punditry, it's not about any of those things. 

I'm not a lawyer. I don't know anything about the cases that are being made or going to (the) Supreme Court. I do know that Fed independence and central bank independence in any country, but especially at the Fed, is absolutely, crucially important. And if you look at places where they don't have central bank independence, inflation comes roaring back. And that's not a surprise, that that's what happens. So, the Fed needs to be independent from political interference when setting interest rates. It’s as simple as that.

Ryssdal: Do you worry that that independence is at risk? 

Goolsbee: I don't worry, because A, I'm not a worrier type. But B, as I say, when you sit around the table at the FOMC, my observation is people take the job extremely seriously, and so I have no reason to think that that won't continue.

Ryssdal: All right, let me get you back into your comfort zone. And I ask you this question, as you have described yourself many a time on this program, as a data dog. We are, as you know, in the middle of a government shutdown — early stages. We're not going to get the jobs number on Friday. You are a data dog. How worried are you about the shutdown in this economy and your ability, at the central bank, to figure out what the heck is going on?

Goolsbee: Yeah, look, the data dogs are howling because, you know, we're not getting our usual supply of information. I will say, I consider the Bureau of Labor Statistics job data to be the absolutely best data source on jobs and statistics in the entire world. If we aren't going to have those, it's problematic.

That said, the Chicago Fed has come out with some new job market indicators, and we'll be releasing them tomorrow, which give a real time forecast of the unemployment rate using 11 different sources, some private, some public. It will allow us to say what the unemployment rate would have been, and we track the hiring rate for the unemployed, and we track the layoffs and other job separations rate. I think, at moments like this, where even when we have the normal jobs numbers, payroll employment is a lot noisier because of immigration changes, because of labor supply changes, it behooves us to look at these rate measures as an indicator. And kind of, one of the key rules of the data dogs is, sniff every piece of data that hits the floor, because it might be food. And so that's what we're going to have to do. I mean, the best number is the BLS number. But if we don't have that, we're going to use the Chicago Fed numbers and other numbers. 

Ryssdal: Perfect timing, actually, for you guys to be rolling this thing out. Let me ask you though about the job market, because you have said in a speech or in some remarks the other day — and this is just an observable fact — we are in a low hiring, low firing environment, right? There's not a lot of stuff going on there, because consumers and mostly employers are really nervous. What do you make of that?

Goolsbee: Yeah, that's an unusual situation to be in, and that's one of the things that I've been trying to highlight, is, that's not a normal recession. So if you looked at payroll employment and saw it going down or saw an ADP number that was disappointing, normally, if that were the beginning of a recession, you would expect that the layoffs would be going up. But layoffs aren't really going up, but the hiring rate is low. I do think some significant part of that is the natural result of uncertainty, that there's a lot of stuff going on that, as I'm out here in the seventh district talking to business leaders, they're still saying, “Well, we're we're trying to get clarity of where the tariff rates are going to end up, what's going to be exempted, is the government going to shut down, how long will that last?” There's a bunch of question marks that people are sitting on their hands a little bit, and that contributes to an environment where they're not letting people go, but they don't want to hire people either, because they want to get some clarity.

Ryssdal: Yeah, in plain English, people sitting on their hands, does not economic activity make.

Goolsbee: Yeah true. But yet, at the same time, a lot of times what we'll do, as you know, if we're trying to figure out where we are in the business cycle, is go look at the most cyclically sensitive, interest rate sensitive parts of the economy, as this canary in the coal mine to tell you where are we in the business cycle. That's normally business investment, consumer durables, housing construction. And we're getting a mixed picture. If you look at that, business investment is actually pretty strong. Consumer durables, consumer spending overall has been looking surprisingly strong so far, even for the third quarter. Housing construction’s the weak spot in there. So we got some cross currents. And going into a period where you're trying to figure out, “is this a transition?” and then you're not going to get the data, is just that much harder.

Ryssdal: You have talked about being worried about cutting interest rates too fast, too early. So given all that you've said to me this morning, and that sort of belief that you have, which side of the mandate do you come down on now? Are you more worried about jobs or you're more worried about price stability?

Goolsbee: Ehhh...

Ryssdal: (laughs) I’m sorry, that is a great answer, “Ehhh…”

Goolsbee: My concern is we've been four-and-a-half years above the inflation target. And when inflation was shrinking, and it felt pretty comfortably to me, like we're on path to 2%, I was, as you know, pretty out front saying, “I think rates can keep coming down a fair amount from where they have been.” I still feel that way, but I'm starting to get a little more concerned when inflation is going the wrong way. We've been four-and-a-half years above 2% and now inflation is rising. And that makes me nervous about front-loading too many of the rate cuts. I still think rates can come down, we just got to get some dust out of the air and get this clarity. But front-loading the rate cuts when inflation is rising and already too high to begin with, and counting on that inflation will probably be transitory and just go away, given the history of the last three or four years, that makes me nervous. And while the Bureau of Labor Statistics is down, let's remember those are the folks who also tell us the inflation readings. And while we have some other indicators of the job market, we don't have that many indicators about inflation. And we started to see a kind of a disturbing uptick in services inflation, which is not really likely to be driven by tariffs, that is an area of concern at the least.

Ryssdal: I was going to let you go, but then you went and used the word “transitory.” Which honestly, coming out of the mouth of the central banker, is a gutsy move, man. Do you believe that these tariff impacts will be transitory on the price level?

Goolsbee: I certainly hope so. You know, the theoretical argument is, if it's a one time, one-and-done tariff, that would increase the price level, and it would not be a lasting inflation shock. But the thing is, so far, it hasn't been one, and it is not done. So I think we want to be a little careful about concluding, “Oh, these are automatically going to go away.” People are not going to be surprised that inflation turns out to be persistent. That just makes me a little uneasy. I still think the underlying economy is a pretty strong economy and that we can get rates down a fair amount. I just want us to be careful (of) overly front-loading before we have the evidence.