Why Austan Goolsbee Is Still Concerned About Inflation

Summary

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Odd Lots Podcast Summary

Episode: Why Austan Goolsbee Is Still Concerned About Inflation
Hosts: Joe Weisenthal & Tracy Alloway (Bloomberg)
Guest: Austan Goolsbee, President, Federal Reserve Bank of Chicago
Date: August 23, 2025

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Overview

This episode, recorded at the Jackson Hole economic symposium, features a timely and nuanced discussion with Chicago Fed President Austan Goolsbee. The conversation explores the state of the US economy in 2025, persistent inflation concerns, impacts of tariffs, labor market dynamics, and why Goolsbee maintains a cautious stance on rate cuts. The conversation provides first-hand insights into how a top Fed official is interpreting recent economic developments—and what keeps him watchful.

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Key Discussion Points & Insights

1. The State of the Economy & Goolsbee’s Inflation Concerns

• Goolsbee describes the economic outlook as uncertain, with some indicators positive but recent data raising red flags—especially on inflation.
  • “As you know, I thought first Q1 coming into April it was looking pretty good... inflation... looked to me like it was heading, it was coming down... we had a couple of months of benign inflation numbers and then we got the last inflation number which is a little less benign and the rise of services inflation threw me for a little bit of a crosscurrent.”
    (Goolsbee, 03:46)
• Inflation remains his primary worry, particularly the resurgence in services inflation and the possibility that tariffs could prolong or worsen price pressures.
  • “I’d say inflation. I’m still thinking inflation... Now that we are seeing a couple of bumps and things ticking up, I fear we got to... think about that inflation side.”
    (Goolsbee, 07:58)

2. Labor Market Metrics: The “Four Horsemen of Truth”

• Goolsbee is wary of reading too much into payroll data due to population fluctuations (immigration in particular), instead focusing on four key metrics:
  • Unemployment rate
  • Hiring rate
  • Layoff rate
  • Vacancy rate
• “The four horsemen of truth and justice, in my view are rates. They’re less susceptible to the immigration and population labor supply problems… If you look at those rates, three of them still say this is basically full employment and it's looking fine.”
  (Goolsbee, 05:57)
• Despite softer payroll numbers, low layoffs and strong vacancies suggest continued labor market strength.

3. Tariffs, Supply Shocks, and Transmission to Inflation

• The discussion explores how tariffs have rattled key industries in the 7th District (Midwest manufacturing and agriculture), with initial panic receding but lingering structural worries.
  • “The 7th District... is the most manufacturing intensive of all the districts... in the run up to April 2 and through April 2 into May... their hair was on fire. I mean this is going to wipe us out... If anything's like the rates of what they just announced, the auto suppliers that we had small margins to begin with, we're going to die.”
    (Goolsbee, 21:05)
• Goolsbee warns that even if tariffs are theoretically ‘one and done’, real-world supply chain dynamics and repeated shocks mean they can sustain or reignite inflation.
  • “For the platonic ideal of a theoretical one and done tariff, it's just a one time price increase... This is not one and this is not done. So let's be a little more circumspect... We learned in Covid that if it's a big enough impact on the supply chain... that process takes a lot longer than we thought it would.”
    (Goolsbee, 24:51)

4. Services Inflation & Unexplained Price Pressures

• The panel discusses the concern that services inflation is strong despite little connection to tariffs, leading to uncertainty about underlying inflation mechanisms.
  • “One part. What if the services inflation is, isn't coming from tariffs? Okay, so that's the, the danger... you kind of can't really give a simple mechanism of why services inflation would be rising… It wasn't good.”
    (Goolsbee, 25:03)
• Unanchored expectations and the risk of a wage-price spiral remain dangers if consumers and workers assume inflation will stay high.

5. Monetary Policy: Rates, Market Expectations, and Cutting Debate

• Markets expect higher “terminal” rates versus pre-Covid times; Goolsbee suggests past ultra-low rates were the anomaly.
  • “If you asked historically which of those is weird? 2018, 2019 is what's weird. The long rates now look very similar to historical patterns.”
    (Goolsbee, 19:04)
• He hesitates on immediate rate cuts due to “flags” on inflation, but says stable employment could justify cuts if inflation resumes its downtrend.
  • “I don’t come to it averse to cutting of rates... but we've just got a couple of flags at the same time.”
    (Goolsbee, 07:30, paraphrased for clarity)

6. FOMC Dynamics and Decision-Making

• Joe’s recurring question: Why are dissents rare on the FOMC?
  • Goolsbee credits Chair Powell’s “hall of fame” leadership and his skill at uniting diverse views within the committee.
  • “He's been remarkably skilled at whether it's through statements, whether it's through like what's. What's written on the page that everybody... can agree. Yes, I agree with that and I think that's why there are fewer dissents.”
    (Goolsbee, 31:10)

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Notable Quotes & Memorable Moments

• On the challenges of interpreting data in times of demographic shift:
  “At moments when there are population growth shifts... be careful using monthly payroll... pay less attention than you normally would.”
  (Goolsbee, 10:32)
• On consumer psychology and inflation:
  “Everyone's experienced inflation now... they're more amped up to see it... you see this consumer confidence numbers going down somewhat significantly.”
  (Goolsbee, 09:00)
• Fed independence and cohesion:
  “You can see from a minute... that's not true. People have different worldviews. [Powell] has been remarkably skilled... so that's why there are fewer dissents.”
  (Goolsbee, 31:10)

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Important Segment Timestamps

• 03:46 – Goolsbee’s summary on the economy, inflation, and shifting indicators
• 05:57 – Introduction of the “Four Horsemen” labor market measures
• 07:58 – Primary focus on inflation over labor market
• 14:59 – Debate over whether current market conditions are restrictive
• 21:05 – Real-world impact of tariffs in the Midwest and concerns in agriculture/manufacturing
• 24:51 – Explanation of how tariffs and supply shocks feed inflation
• 25:03 – Worry about unexplained services inflation
• 31:10 – Why FOMC dissents are rare and Powell’s leadership
• 33:27 & 34:16 – Post-interview reflections by Joe and Tracy

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Conclusion

This episode provides an unusually candid look at the challenges facing monetary policymakers in 2025. Austan Goolsbee emphasizes his lingering concerns about inflation, especially the potential for persistent services inflation not directly tied to tariffs, and the limitations of traditional labor market indicators due to demographic changes.

Despite market optimism around rate cuts, Goolsbee urges caution and continued vigilance. The Fed’s decision-making is shown to be both data-intensive and shaped by strong internal debate and leadership, offering listeners a nuanced portrait of central banking in turbulent times.

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Hosts:
Joe Weisenthal (@TheStalwart)
Tracy Alloway (@TracyAlloway)

Guest:
Austan Goolsbee (@AustanGoolsbee)

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Transcript

[Lisa Mateo]

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[Austan Goolsbee]

Bloomberg Audio Studios Podcasts Radio News.

[Joe Weisenthal]

Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

[Tracy Alloway]

And I'm Tracy Alloway.

[Joe Weisenthal]

So, Tracy, we are recording this on Thursday, August 21st. We are here at Jackson Hole. I need to note at the beginning we were recording this before the big Powell speech. I don't really think it matters too much. Cause that's not. But I just want to like get that out of the way. A little timing, context for an econ conference.

[Tracy Alloway]

We're not going to talk about that speech for obvious reasons. We don't know what's going to be said. But what we can talk about is the economy right now. That's not going to change between, you know, right now and tomorrow morning.

[Joe Weisenthal]

Hopefully when the next comes out, probably it's not going to going to change much. But you know, we've been very lucky lately. We've been talking to a lot of regional Fed presidents and it's really cool that we have access to them.

[Tracy Alloway]

Yes, and it's good to get a range of opinions as well because as we've been discussing, the economy does look very uncertain right now. And you could make a case for everything from a rate cut to holding to possibly even maybe hiking. Which you know, Jeff Schmidt kind of alluded to when we interviewed him.

[Joe Weisenthal]

Yeah, no, it was pretty extraordinary that like, look, you could make a point that stock market's near record highs, credit spreads and your record lows, employment low and inflation still warm. Why are we talking about rate cuts anyway? We gotta keep getting more takes and perspectives on this from the people who actually think about this the best.

[Tracy Alloway]

And do we get a prize if we interview every Fed president.

[Joe Weisenthal]

Well, we should try. There's gotta, there should be a name for that. But we have a guest, perfect guest. Someone we've talked to on the podcast before. Very excited to to have live here in Jackson Hole past odd lots guests, Chicago Fed President Austan Goolsbee. So Austin, thank you so much.

[Austan Goolsbee]

I'm gonna give you a prize. Now I drove here, I just got here, I just got in an hour and a half ago. I believe that I've driven the farthest of anybody to get here and one of the things I did on the way was finish my 50th state, North Dakota. And it turns out there's a lot of people. North Dakota is their last date and there's officially a club called the Best for Last Club. Oh, and I joined the Best for Last club. So who's going to be your 12th Reserve bank president? They're going to get a prize.

[Joe Weisenthal]

Congratulations. I saw your road trip like on Twitter. I saw that you were posting so.

[Austan Goolsbee]

There are some amazing national parks on the, on the.

[Joe Weisenthal]

We have a great country, don't we?

[Austan Goolsbee]

Yeah, we got amazing country.

[Joe Weisenthal]

How's the economy look at you these days?

[Austan Goolsbee]

Well, it depends which direction you're facing. As you know, I thought first Q1 coming into April it was looking pretty good. We had a stable full employment. The unemployment rate a little above 4, inflation while having been above the target for four years looked to me like it was heading, it was coming down and down and down and was headed to 2%. And so I thought reasonable approximation rates need to start heading down to where we think they're going to settle, which is a fair bit below where where we were then, where we are today. Then we go through some bumps, I've heard of them, threw a bunch of dirt in the air. All of this stuff that it's like, is the economy still where it was in January, February, March, or are we on some different path? I still closet hope slash think that we're where we were before and that tariffs imported goods are only 11% of GDP. If they'll kind of stay in their lane if we don't keep escalating them, if we don't willy nilly apply them to intermediate goods so that they turn into higher cost of production, it'd probably be okay. And we had a couple of months of benign inflation numbers and then we got the last inflation number which is a little less benign and the rise of services inflation threw me for a little bit of a crosscurrent. So I'd say I'VE still got one eye on inflation. We're now four and a half years above the target. It's one thing to be four and a half years above the target, but we're still clearly trending down. Yeah, if we start trending up and you start seeing inflation rising in non tariff affected categories like what we saw in services, then I'm gonna get a little more nervous on that side. And on the job side, I still feel like we're something like stable full employment. The revisions, they are concerning. We also know that the labor supply and population growth when there's big immigration things happening, add a lot of noise to just monthly payroll. So I don't want to over index on that. I want to take multiple measures. The four horsemen of truth and justice, in my view are rates. They're less susceptible to to the immigration and population labor supply problems. They're the unemployment rate, the hiring rate, the layoff rate, the vacancy rate. If you look at those rates, three of them still say this is basically full employment and it's looking fine. It looks very similar to 2018, 2019, a strong job market. The hiring rate is low. And if you talk to parents of kids graduating from college, you hear tough. It's tough to get a job. We're in a low separations, low hiring environment. But that might be full employment. Okay, so that's why I say I don't come to it. Averse to cutting of rates. If we get through this and we can get some stuff settled on the tariff side, we might easily still be on the golden path. It might still make perfect sense to keep going down, but we've just got a couple of flags at the same time.

[Tracy Alloway]

I think you just hit all of our talking points in that one.

[Joe Weisenthal]

Thank you for coming on out.

[Tracy Alloway]

We will dig into all these things, but just before we do, I have one question. Maybe it's a bit like asking someone who their favorite child is, but what's occupying most of your headspace at the moment?

[Austan Goolsbee]

I thought you were about to say Chicago is your favorite bank and I was gonna say good ch yours.

[Tracy Alloway]

No. Is it inflation or the labor market? What are you thinking most about?

[Austan Goolsbee]

I'd say inflation. I'm still thinking inflation. If we had four benign months of inflation that looked like those kind of early ones, that would have helped me be much more comfortable with the idea. It's not going to be, you know, tariffs stayed in their 11% lane. People aren't freaking out. It's going to be fine. Let's just go think about the Employment side. Now that we are seeing a couple of bumps and things ticking up, I fear we got to, we got to think about that inflation side. Just given what the history was. If we were having this discussion in 2019 and we hadn't had the team transitory and the argue the very same arguments like no, no, this a one time thing thing and so the inflation should just go away real quickly. If we hadn't had that, I would be much more comfortable making that argument. But now that I don't even like using that word.

[Tracy Alloway]

Plus everyone has experienced inflation now everyone's experienced.

[Austan Goolsbee]

So they're more hyped up, they're more amped up. Not hyped up, they're, they're amped up to see it. And look, you see this consumer confidence numbers going down somewhat significantly. Survey measures of inflation expectations which I in fairness always said I put less weight on than market based measures. That said I don't put zero weight on them. And if you see people in surveys ask what do you think inflation is going to be over the next one year, two years now even longer they're saying it's higher. So we, we got to think about that.

[Joe Weisenthal]

You mentioned those labor market revisions and when we got that last jobs report is mediocre. But even more than mediocre was it was the pull down of the prior two months. And there's actually strikes me as two ways of looking at this. One is, oh you know what, the labor market is really decelerating. That probably we have to have cuts soon if we want to hold on to full employment. But there's another take that actually has come up in a couple of recent episodes which is. Well yeah, that was the post April 2nd volatility. We're through that now that actually we have more tariff certainty than we, we certainly have more tariff certainty than we did. That was maybe the TR trough. We got a S&P flash PMI today that actually showed a positive employment rating. This came up in our conversation with Jeff Schmidt who's throwing this event for the Kansas City Fed that maybe that was the cyclical low for the year. Just that the craziness of those couple months.

[Austan Goolsbee]

Fascinating. I thought you're going to go totally different. Okay, so those are two schools of thought, both of which are premised on using monthly payroll as an indicator of where we are in the business cycle. And in normal times that's perfectly appropriate. My third category is at moments when there are population growth shifts. Yeah. And labor supply, especially from immigration. Be careful using monthly payroll because that was one of your business cycle.

[Joe Weisenthal]

That wasn't one.

[Austan Goolsbee]

That wasn't one of. Because. And I have no. Is it remorse? Not remorse. I have no. I don't feel guilty talking about this topic now because you can go back and look a year and a half ago and more when we were getting jobs, numbers that were far higher than what we thought the break even was. There was a one group that was saying, we're about to have inflation kick way back up because 180,000 jobs a month is faster than break even. Break even is like 85,000amonth. So we're overheating. And at that time I said, not pay no attention, but pay less attention than you normally would to what the payroll jobs numbers say. Because we know there's a whole bunch of immigration that's happening behind the scenes that is not showing up yet. Now when we look back, everybody says, oh yeah, obviously that's why we generate as many jobs. This is just the exact same idea, but in reverse. Now it may prove not to be true. This might be an indicator of the business cycle, but we learned the last time around that those four horsemen of truth were rates, not aggregates. Okay? So if you don't know what the population growth rate is or if it's different than what you expected, be extra suspicious about great total payroll employment and total GDP growth. So if you started to see GDP growth overall is slowing down, but the components don't really suggest that, or if you start seeing payroll growth, you characterize it as mediocre. I don't think it was like 75,000. That's right around the break. Even if you're 75,000 plus or minus 100,000, which is normally what you are for monthly payroll, you're going to get months where you have low payroll. And then if you add this immigration thing on top of it, like I say, I'm not saying ignore it. I'm just saying be very careful. I was a little not puzzled, but I was a little concerned that the market reaction seemed to be. Let's take our understanding of monthly payroll numbers circa 2018 and say that must mean we're on the verge of recession, right? If that's where your head is that you say, well, a low monthly payroll in the past has been an indicator of the beginning of recession, then you gotta explain why these other ones don't show that. Why is the layoff rate as low as it is? You ha. You haven't seen an uptick in layoffs. The vacancy rate is actually rising a little. And is better than it was in 2019, I think. So this doesn't look like a normal business cycle yet. If it starts to, I'll be the first one saying this is what the beginning of a recession looks like.

[Tracy Alloway]

So the idea is that weaker payrolls can be offset or are being offset by weaker labor supply because we're getting less immigration. So the break even rate is that.

[Austan Goolsbee]

The break even is low. Yeah.

[Tracy Alloway]

Okay, you mentioned the market reaction just then. Can we talk a little bit more about the market? Because as Joe mentioned, you know, stocks are still kind of near their record highs. I know they've been falling a bit this week. Credit spreads at like a 27 year low. I still hear Fed officials talk about rates being restrictive even though inflation is still above target. But when I look at the market, when I look at financial conditions, it doesn't look that restrictive to me.

[Austan Goolsbee]

Look, be careful. We're just in the weird glass onion version of the same discussions we've been having for several years now that I've been in the Fed. I'm coming on three years. At that time it was positive supply shocks and the whole question was are we about to re overheat? Do we need to maintain, do we need to keep raising, do we need to maintain the rates this high or can we start cutting? I kind of think that a large component of what's in expectations and what's in the market's reaction is the reflection problem that if they think that the Fed is going to succeed, then you could see conditions loosen. But that wouldn't be a reason that the Fed should raise necessarily because they're premised on thinking that it's going to work. That's what I was saying before and I kind of now think in the same way it might be an indication. But if you just look at rates and you look at kind of the traditional credit channels of monetary policy, I still think that rates are relatively restrictive. And so that's why I say if you start to see deterioration in the labor market, you start to see layoffs going up and it starts looking more like a the turning point in the labor market, then I think we're going to have to seriously contemplate cutting of rates. If we're in an environment where we're actually in pretty stable full employment and the only thing that's happening is population is making the break even, monthly jobs number 40,000 instead of 100,000 and inflation is going up in a bunch of categories that are not tariff related. Now we got to be a little more CIRCUMSPECT you can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris.

[Lisa Mateo]

And I'm Karen Moscow here to tell you about our new On Demand news report delivered right to your podcast feed. Bloomberg News now is a short 5 minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed.

[Austan Goolsbee]

Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on on Bloomberg News Now.

[Lisa Mateo]

And we don't wait an hour to publish breaking news. When news breaks. We'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments.

[Austan Goolsbee]

Get the reporting and the context from Bloomberg's 3,000 journalists and analysts. We're all over the world. Listen to the latest from Bloomberg News now on Apple, Spotify or anywhere you listen.

[Joe Weisenthal]

So I want to ask a question. It's something that I'm very increasingly interested in and want to talk to a lot more people about, et cetera. But there are aspects of this economy that as you say, may kind of resemble 2018, 2019, et cetera. One thing that strikes me as very different is the long term rate and the implied therefore what people would call the neutral rate or whatever. And maybe rate cuts are coming soon, but the market is not expecting a deep cutting cycle that terminal rates. What's changed? What's the fundamental difference in 2025 versus 2018 such that for the Fed to hit its 2% inflation target, the market is pricing in so much higher rates than what it had anticipated prior to Covid.

[Austan Goolsbee]

I don't, I mean I should ask you, you've talked a lot of people.

[Joe Weisenthal]

No, I'm not.

[Austan Goolsbee]

I would say there's one way to look at that, that if you asked historically which of Those is weird? 2018, 2019 is what's weird. That was the, you know, I mean like the long rates now are look very, yeah, very similar to kind of historical patterns. There's a whole tremendous almost industry in research trying to diagnose that. And that bleeds into the question of are we going back to super low rates, ultra low rates because is it global savings glut? Is there something happening with productivity? Do they think demand is going to be low? Is there a feeling that treasury is going to have to issue so much debt? I mean there's been a big increase in debt to GDP Ratios worldwide I do find informative. This increase in loan rates is not exclusive to the US you see it in a lot of countries. So I don't totally know. There's probably some of many of those explanations. And for whatever reason, what the market thinks the Fed is going to do in short rates does seem to have a outsized impact on 30 year rates. So that's part of it is probably just reflecting how steep or how shallow a path do they think the Fed is going to take?

[Tracy Alloway]

So just going back to inflation for a second, you've mentioned a couple times now that you're worried about maybe tariff induced inflation in goods starting to seep into services. Can you talk a little bit more about how you see that channel actually working? And then also you're head of the 7th district and you have some interesting states in there. You've got Michigan which still makes cars. You've got Iowa which has farmers. Like, what are you seeing in terms of the pass through from goods to services there?

[Austan Goolsbee]

Okay, these are both important topics for us to think through. Let's go backwards in order. The 7th District, headquartered in Chicago is the most manufacturing intensive of all the districts and by far the most auto production of all the districts. It's one of the big agriculture heavy districts. But Kansas City, Minneapolis, there's a couple of others I would say in the run up to April 2 and through April 2 into May, almost a June, they are, their hair was on fire. I mean this is going to wipe us out. If anything's like the rates of what they just announced, the auto suppliers that we had small margins to begin with, we're going to die. We don't know you, we don't know what's going to happen. That's why I was getting amped up about it at the time as we kind of got some clarity on what the rates were going to be and particularly when they began exempting, if it's USMCA compliant, it's not going to apply for a bunch of intermediate goods. It's not going to apply commerce influence. I would say as I talk to people now for manufacturing and for agriculture, they're still in that space. In agriculture they were particularly heartened by as some of the negotiations got concluded. Even if they weren't going back to no tariffs, the fact that they were going to something that would not lead to retaliation was a very big thing for agriculture because a lot of their biggest markets are overseas. I was just recently in Iowa though. They're still nervous in that space that in some ways the damage is already done and it takes a long time to build up these export relationships. And if you smash that and they start buying soybeans from Brazil, that even if you go back to zero tariffs, they might have already set it up. So there is like a nagging that the longer run impact will be different than the short run impact. But I would characterize short run impact scaled down from I always get the defcons backward. Defcon 5 is the worst. Right.

[Joe Weisenthal]

So no is that I thought DEFCON 1 was the worst.

[Tracy Alloway]

Everybody says, how often are we declaring defcon, whatever it is.

[Austan Goolsbee]

There was a high defcon, a bad defcon, dangerous defcon, as high as you could be. And now it's gone back. Not background noise, but the sentiment like, we can live with this if this is what it is. As long as this stops when we're not going to face new ones, we can deal with this. Now that said, it sort of goes to your second due to your original.

[Joe Weisenthal]

DEFCON 1 is the highest state of military right now.

[Austan Goolsbee]

DEFCON 1 is the highest. So they were at DEFCON 1. Okay. And we're back to DEFCON 5.

[Joe Weisenthal]

I just looked that up.

[Austan Goolsbee]

Okay, all right. I, I added backward, which is embarrassing because I'm always like, no, no, you know, that's the, that's the opposite. But now I, I opposited myself.

[Joe Weisenthal]

Yeah, yeah.

[Austan Goolsbee]

Again I' okay, so the question about what is the mechanism that the tariff inflation turns into services inflation? Permit me a slight detour. What is the mechanism that tariffs turn into inflation of goods as opposed to just a one time price increase? Because there is an argument that for the platonic ideal of a theoretical one and done tariff, it's just a one time price increase. So no matter what it is, just look through it.

[Tracy Alloway]

Right. And a one time price increase, just to be clear, doesn't count as inflation under traditional economic frameworks.

[Austan Goolsbee]

Because basically if you go measure inflation, inflation would be high for one year.

[Tracy Alloway]

Yeah.

[Austan Goolsbee]

And then the inflation would go away. But that was the very argument of team transitory in 2021 was yes. Here this thing hits supply, we're going to let bygones be bygones. We'll eat the inflation for one year and then it's going to go away. Now remember, this is for a one and done tariff and this is not one and this is not done. So let's be a little more circumspect of just saying, hey, theoretically it's just going to go away. We learned in Covid that if it's a big enough impact on the supply chain and especially if it's going industry A to industry B, industry B makes inputs for C. That process takes a lot longer than we thought it would in 2019 and 2020. When we got to 2021, we were like, yeah, hey, it'll fix itself, you know, probably six months. That was the argument of transitory. So I'm a little concerned about just the impact of tariffs on goods inflation itself lasting longer than we wanted to and people getting mixed up. You'll recall the perfectly valid arguments in 21 and 22 and into 23 where people said it doesn't matter if it's supply shock induced inflation. If it's high for too long, it's going to fold into expectations and then we'll never get rid of it. That didn't prove true this last time. But if people are more attuned to price increases, it could. And we just got to be careful on that front. Now ask the question, how does it turn into services inflation? One part. What if the services inflation is, isn't coming from tariffs? Okay, so that's the, the danger of services inflation is you kind of can't really give a simple mechanism of why services inflation would be rising. The new month of services inflation was quite terrible and some part of that are non market determined. So I put a little less weight on those, but it wasn't good. That probably the mechanisms that you think through, how would tariffs cause that? I think you'd be hard pressed to figure out how it would cause it. But that doesn't make you feel better, that makes you feel worse because it's like, whoa, whoa, wait a minute. Maybe some inflationary dynamic was never put out. And you ever like make the campfire and it's like, oh yeah, it's done. And then you look away, back on fire again. We can't let that happen. We've been four and a half years above the target. We were making progress, now we've stopped making progress. If it's spreading into services inflation this immediately, it's probably not coming from tariffs. The other mechanisms, how does it move into services inflation is sort of wage price spiral.

[Tracy Alloway]

Yeah.

[Austan Goolsbee]

Where people say, well I think prices are going to go up, so I'm, I'm going to be that much more aggressive in my wage negotiations with the employer. The only reason I'm hesitating to go down this lane is then you're probably going to say, well what about wages? Are wages compatible with 2% inflation? And you can't answer that until you know what the productivity growth rate is. Which has been one of the bright spots. But that's actually my. One of my bigger fears about the tariffs is there's a long literature of research in economics showing you raise tariffs, especially on components supplies. It drives down productivity growth. Yeah.

[Joe Weisenthal]

Tracy and I were in Alaska recently and I feel like we heard multiple ways, whether it's like the company's making tubular goods for the oil patch out there and that's going to make it increased break evens, whether it's like just.

[Tracy Alloway]

The uncertainty doing the paperwork for customs. Sounds like a huge look.

[Austan Goolsbee]

Okay. It sounds like a productivity destroyer, you know, factor.

[Joe Weisenthal]

I'd have one last question and I'm turning this into my question that I ask every Fed president that we can talk.

[Austan Goolsbee]

Is that why Tracy rolling her eyes?

[Tracy Alloway]

I wasn't rolling my eyes. This is, this is my theoretical question.

[Joe Weisenthal]

But I think it might be important down the line. Why are dissents rare at the fomc?

[Austan Goolsbee]

Why are dissents rare? I. I haven't. I've only been there a short time. The Fed years are like reverse dog years or something. Like you'd be there seven years. They're like, oh, he's the new guy. Okay. So I'm coming up on three years.

[Joe Weisenthal]

Yeah.

[Austan Goolsbee]

There have been some dissents. I can I tell you what I'm.

[Joe Weisenthal]

Trying to get at.

[Austan Goolsbee]

Yeah.

[Joe Weisenthal]

At some point the chair is going to be replaced. And what I'm trying to understand is when there's. The new guy is in that position, to what degree does the fact that most of the time the voting members align with Powell? How much of it is the fact that you more or less think about the economy in roughly similar ways and looking at the same data and how much is it about. Powell has done a good job of navigating. Yeah. Navigating the board. And so this is why I'm asking the question, because I'm thinking about what those dynamics are going to be like with the next.

[Austan Goolsbee]

I feel like it's more the latter. You know, the rules. I'm not allowed to speak for anybody else. Speak for the committee, speak for the chair. You know, I'm a longtime fan of Jay Powell. I think he's a first ballot hall of fame Fed chair and he has great judgment. He has also navigated a pretty diverse set of worldviews on that committee. That's what makes me feel. It's less the first thing.

[Joe Weisenthal]

Okay.

[Austan Goolsbee]

Everybody just has the same worldview. You can see from a minute.

[Joe Weisenthal]

Yeah.

[Austan Goolsbee]

That that's not true. People have different worldviews. He's been remarkably skilled at whether it's through statements, whether it's through like what's. What's written on the page that everybody. You coming from different sides but you can agree. Yes, I agree with that and I think that's why there are fewer.

[Joe Weisenthal]

Yeah.

[Austan Goolsbee]

Dissents. But in the time I've been there, there have been numerous two at the last minute.

[Joe Weisenthal]

No, no. Yeah, yeah.

[Tracy Alloway]

Can I ask in general, what are the vibes like right now when you guys are getting together?

[Austan Goolsbee]

Is Joe going to roll his eyes? The presidents get together pretty frequently. The presidents of the Reserve banks get together pretty frequently. We have a conference of presidents. There are a whole bunch of operational things that we have to do and we're a quirky bunch and is usually the vibe is pretty fun from that. The FOMC meeting itself is much more formal and it's probably secret information for me to tell you what the vibes are. If it's not stated in the minute what the vibes are probably not supposed to.

[Joe Weisenthal]

There's a normal way for that to be expressed if it was going to be expressed. Austin Goolsbee, thank you so much for coming back.

[Austan Goolsbee]

Before you guys were ever famous, I was in here. I was friend of the show before.

[Joe Weisenthal]

No, that was fantastic and definitely won't be the last time we have you on the show.

[Tracy Alloway]

Thank you so much.

[Austan Goolsbee]

Thank you.

[Joe Weisenthal]

Tracy. It really is pretty striking the degree to which it feels like the rate cut question is not settled.

[Tracy Alloway]

No, not at all.

[Joe Weisenthal]

Not at all.

[Tracy Alloway]

And at this point, I mean, I guess we have to talk to more Fed presidents, but it does seem like maybe the market has gotten a little ahead of itself in terms of expectations. Again, we're recording this on Thursday, August 21st, and we're going to get the Powell speech tomorrow. So who knows what he's going to say. Maybe markets will recalibrate their expectations after that. But you do hear a lot of convincing arguments for why you should look through things like weaker payrolls. Right.

[Joe Weisenthal]

I really, really liked the Four Horsemen of Truth and this idea that in the time of volatile population measures, you want to look at rates. I'm going to, I'm going to like remember that it was very clearly articulated by Austin there. So like vacancy rates, hiring rates, firing rates, these are the things that actually give us clean signal across the cycle when population levels are in flux.

[Tracy Alloway]

Well, Powell made a similar argument in the questions after the last meeting. Right. Didn't he say like he's looking at the unemployment rate because he thinks that's more Meaningful at a time when you are having these changes.

[Joe Weisenthal]

Yeah, no, I do think I have to actually take that. Yes.

[Tracy Alloway]

I could be wrong.

[Joe Weisenthal]

I have to internalize this.

[Tracy Alloway]

I could be hallucinating statements from Powell because, well, that's the thing.

[Joe Weisenthal]

Rate has remained fairly low and I think that's important. But I like Austin's point is like that he said at the end that if you can't tie sort of the services inflation in some way to tariff, that's even the fact that we don't have a good story for it. Like, if you have a good story for it, that's one thing. But this idea that it's like, well, what if this is just that ember that didn't go out? You like throw a cigarette in the trash or whatever and there's that little spark of it. Like that is a little bit more ominous.

[Tracy Alloway]

Yeah. And I do think like the starting level is important here. So you have to remember the Fed spent the past three years fighting inflation. It's still not down to 2% and everyone has higher prices on their minds. Like we've all experienced it at this point. And so the concern is that like the impulse to raise prices and tolerate more high prices is higher than it once was. I think that's important. It doesn't get discussed enough potentially. All right, shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Joe Weisenthal]

And I'm Jill Wiesenthal. You can follow me at the Stalwart, follow our guest Austan Goolsbee at Austin Goolsbee, follow our producers Kerman Rodriguez at Kerman, Erman, Dashiell Bennett at dashbot and Cale Brooks at Kalebrooks. For more Odd Lots content go to bloomberg.com oddlots where we have a daily newsletter all of our episodes and you can chat about all of these topics 24. 7 in our Discord Discord GG odd lots.

[Tracy Alloway]

And if you enjoy Odd Lots, if you want us to interview all the Fed presidents and win a prize, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions that there. Thanks for listening.

[Lisa Mateo]

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