WSJ What’s News: Chicago Fed President Austan Goolsbee on Tariffs, Inflation, and AI
Release Date: July 20, 2025

Introduction

In this insightful episode of WSJ What’s News, co-hosts Gunjan Banerjee and Telus Demos engage in a deep conversation with Austan Goolsbee, President of the Chicago Federal Reserve. The discussion revolves around pressing economic issues such as the impact of tariffs on inflation, the state of the housing market, productivity growth influenced by artificial intelligence (AI), and the Federal Reserve's monetary policy decisions. This summary captures the essence of their conversation, highlighting key points, notable quotes, and Goolsbee’s expert analysis.

Tariffs and Their Impact on Inflation

The conversation opens with Banerjee and Demos addressing the anticipated effects of tariffs on inflation. They reference previous analyses predicting that tariffs would begin influencing price data in the summer or fall. Telus Demos remarks, “It’s no more of this inflation,” suggesting that tariff-induced inflation is becoming palpable (01:13).

Austan Goolsbee provides a nuanced perspective on tariffs, highlighting their limited impact on the broader U.S. economy. He explains, “Imported goods are only 11% of US GDP” (05:44), emphasizing that while tariffs can disrupt supply chains, the U.S. economy remains predominantly domestically driven. Goolsbee elaborates on how tariffs might affect specific sectors, noting that excessive tariffs could push the economy into a "stagflationary direction," where both inflation rises and output slows (22:21).

He also discusses the dynamic nature of tariffs, mentioning potential increases such as a 50% tariff on copper, and the subsequent effects on business and consumer confidence. Goolsbee cautions against overreacting to tariff changes, advocating for a balanced approach to maintain economic stability.

Housing Market Dynamics

The hosts shift focus to the housing market, a critical component of the U.S. economy. They discuss recent data indicating a slowdown in home sales and explore whether this trend is a cause for concern or a sign that inflation in housing is being controlled.

Goolsbee responds by highlighting positive trends in housing inflation. He states, “The inflation rate of shelter in the CPI, core housing inflation has been moderating” (11:23). This moderation signals progress in controlling one of the most persistent components of inflation. However, he acknowledges the complexity of accurately measuring housing inflation and the need for continued observation to ensure sustained improvement.

Productivity Growth and the Role of AI

One of the most engaging parts of the discussion centers on productivity growth, particularly influenced by advancements in AI. Demos poses a question about how AI is impacting workforce productivity and whether it will help sustain the economy’s “golden path” or pose risks.

Goolsbee underscores the significance of productivity as a critical economic indicator, albeit one that is often “noisy” and less emphasized in public discourse compared to figures like the Consumer Price Index (CPI). He notes, “Industries with the biggest increase in productivity growth from before COVID to after COVID are AI-related” (17:32). Goolsbee is optimistic about technology-driven productivity boosts, suggesting that AI can lead to substantial long-term economic benefits.

However, he also warns of potential pitfalls, drawing parallels to the 2001 internet bubble. Goolsbee cautions against overestimating AI’s immediate impact, stating, “Let’s not repeat that bubble and bust cycle” (20:43). He emphasizes the importance of sustainable, widespread adoption of AI technologies to avoid economic overheating driven by speculative investments.

Federal Reserve Policy and Interest Rates

A significant portion of the dialogue focuses on the Federal Reserve’s monetary policy, specifically regarding interest rate decisions. Banerjee inquires whether the Fed should consider cutting rates in the upcoming meeting to alleviate mortgage rates, a topic of political significance.

Goolsbee maintains a data-driven stance, asserting, “I don’t like tying our hands before we get all the data” (13:37). He emphasizes that the Fed’s mandate is to stabilize prices and maximize employment, without succumbing to external pressures. Goolsbee explains that interest rate decisions are based on current economic conditions and outlooks, rather than political influences.

He expresses optimism about the U.S. economy’s resilience, likening it to having a “six pack of muscle” beneath economic indicators. This metaphor highlights the underlying strength and stability he perceives in the economy, despite surface-level challenges. Goolsbee notes, “People still credibly believe that when the Fed says we’re going to get inflation back to 2%” (20:58), reflecting confidence in the Fed’s policy direction.

Broader Economic Outlook and Concerns

Towards the end of the episode, Banerjee asks Goolsbee about the broader economic trends or blind spots that concern him. Goolsbee identifies the risk of stagflation—where both inflation and unemployment rise—as a primary worry, particularly if escalating trade wars and tariffs contribute to this scenario (22:21).

He underscores the complexity of addressing stagflation, noting the lack of a clear central bank playbook to manage such a situation effectively. This concern highlights the delicate balance the Fed must maintain in navigating economic policies amidst global uncertainties and internal challenges.

Conclusion

The episode concludes with a light-hearted exchange about baseball allegiances, reflecting Goolsbee’s personal connection to Chicago culture. Despite the casual end, the discussion leaves listeners with a comprehensive understanding of current economic challenges and the Federal Reserve’s role in steering the U.S. economy towards stability and growth.

Notable Quotes:

• Telus Demos: “It’s no more of this inflation, is it in the room with us? Like it’s, it’s kind of knocking at the door.” (01:13)

• Austan Goolsbee: “Imported goods are only 11% of US GDP.” (05:44)

• Austan Goolsbee: “Let’s not repeat that bubble and bust cycle.” (20:43)

• Austan Goolsbee: “People still credibly believe that when the Fed says we’re going to get inflation back to 2%.” (20:58)

• Austan Goolsbee: “The nightmare scenario for central banks is anything that pushes us in a stagflationary direction.” (22:21)

Final Thoughts

Austan Goolsbee’s insights provide a balanced view of the current economic landscape, emphasizing resilience and the importance of data-driven policy decisions. His cautious optimism about tariffs, housing, and AI-driven productivity offers a path forward amidst potential economic uncertainties. For listeners seeking a deeper understanding of these complex issues, this episode serves as a valuable resource.

Note: Timestamps correspond to segments within the transcript and are indicated in parentheses for reference.