Latest news with #Goolsbee
The Hill
a day ago
- Business
- The Hill
Fed's Goolsbee calls tariffs ‘stagflationary'
Chicago Federal Reserve president Austan Goolsbee described President Trump's wide-ranging tariffs as 'stagflationary' on Friday, expressing a mainline view of tariffs among central bankers that's prompted the Fed to maintain its pause on interest rate cuts, much to the frustration of the president. 'I think of tariffs as having a heavy stagflationary component,' he said on the CNBC television network. The term 'stagflation' refers to the dreaded combination of rising prices and slowing growth, which aren't supposed to happen at the same time under normal economic conditions. Prices usually rise more quickly when the economy is expanding, and prices tend to fall when the economy is weaker. Recent economic data has broken with the accustomed correlations, as many economists have regarded tariffs as a shock to economic supply. The consumer price index has ticked up to a 2.7-percent annual increase since Trump's tariffs were first announced in April, and wholesale inflation, taking out food and energy, increased in July at the fastest monthly pace since 2022. Meanwhile, the job market has sputtered, adding a total of just 106,000 jobs since May, well below the 80,000 to 100,000 jobs needed every month to sustain regular workforce attrition. Goolsbee distinguished 'transitory' inflation coming from tariffs from inflation that the Fed needs to be 'responding to.' He mentioned secondary effects like 'wage-price spirals' — positive feedback loops between increased unit labor costs and higher prices. 'It's going to be raising the cost of production for domestic manufacturing and others, and that a lot of times … [takes] time to wind its way through the economy,' he said. Tariffs are taxes on foreign goods and services. They're directly paid by American importers, but they can ultimately be borne by importers, exporters, manufacturers, wholesalers, retailers or by consumers in the form of price increases. They can have complex effects on the economy too, reducing demand for specific goods and causing companies to alter their supply chains. The costs can be taken out of margins or passed along in the value chain. Businesses can also change their production schedules to maintain ratios between costs and markup. Total U.S. capacity utilization has ticked down slightly since February, though it's still humming around 77 percent. Revenues from customs duties, which are mostly tariffs, topped $100 billion earlier this summer for the first time during a fiscal year. Duties were $23 billion in May, $27 billion in June, and $28 billion in July. The Congressional Budget Office estimated earlier this year that tariff revenues, including their debt-service effects, would reduce federal deficits by $3 trillion over the next decade. While Goolsbee stressed Friday the stagflationary concerns about tariffs that Fed Chair Jerome Powell has also frequently discussed, not all members of the Fed's interest rate-setting committee share his views. During the Fed's July meeting, two governors dissented from the majority opinion to pause rates for the first time in thirty years. Governors Christopher Waller and Michelle Bowman both thought rates should be lowered by a quarter percent. The dissents followed a relentless pressure campaign from the White House on the Federal Reserve that saw Fed Governor Adriana Kugler resign from the board earlier this month. She was replaced by White House Council of Economic Advisers chair Stephen Miran, who is likely to add more pressure on the Fed to lower interest rates in keeping with Trump's demands.
CNBC
a day ago
- Business
- CNBC
Fed's Goolsbee sees 'note of unease' as central bank looks to next interest rate move
Chicago Federal Reserve President Austan Goolsbee said Friday a mixed bag of inflation data this week coupled with lingering uncertainty over tariffs have given him some hesitation about lowering interest rates. Previously, Goolsbee has spoken of a "golden path" that would combine moderating inflation and a stable labor market and lead to lower rates. But in a CNBC interview Goolsbee said he still wants to see some more convincing data before the Federal Open Market Committee meets on Sept. 16-17. Goolsbee is one of 12 FOMC voters this year. Reports this week on consumer and producer prices "put in a note of unease" on where inflation is headed, as services prices "which are not obviously going to be transitory" are "kicking up," he said. "So I feel like we still need another one, at least, to figure out if we're if we're still on the golden path," Goolsbee said during a "Squawk Box" interview. The July consumer price index was relatively in line with market forecasts, though the core reading that excludes food and energy nudged higher to 3.1%, a bit above Wall Street expectations. However, the July producer price index, which measures wholesale items, posted a surprisingly high 0.9% monthly gain that was the largest in about three years. The data is being examined particularly closely for clues about the impact tariffs are having on inflation. While neither report showed significant obvious impacts, many economists believe the import duties President Donald Trump has imposed are slowly making their way into the data and will show up in coming months. "It all depends on the data and what's the economic outlook. If we keep getting inflation reports like [previous] ones ... I would be very comfortable that, hey, the dust is out of the air, it looks like we're still where we were, which is a strong economy with inflation coming back down," Goolsbee said. "In that circumstance ... the right thing to do to just bring the rates down to where we think they're going to settle," he added. "We've got to get some clarity from the numbers." Markets are placing a near certainty that the FOMC votes to lower the benchmark federal funds rate by a quarter percentage point in September, from the current 4.25% to 4.50% level. However, there are some misgivings about what happens from there, with 55% odds of another reduction in October and just a 43% probability of a third move in December, according to the CME Group's FedWatch.
CNBC
2 days ago
- Business
- CNBC
Chicago Fed President Goolsbee thinks central bank should wait a few months before cutting interest rates
What does a donut tell us about the state of the economy? Chicago Federal Reserve President Austan Goolsbee thought about that Wednesday as he toured Mel-O-Cream Donuts in Springfield, Illinois. Even inside a donut shop, the effects of tariffs on the economy can be seen. "It's sort of surprising, because donuts seem like a very local product, and yet they get some ingredients like palm oil that are coming from Indonesia," Goolsbee said. The Trump administration set tariffs on Indonesia at 19%. "They have to now figure out what are the tariff rates, and the tariffs went up a significant amount. If that happens, that could have a multi-thousand-dollar impact on their operation," he continued. But, he added, "I hope it's not a sign of something more extended or broader in the way that the Covid inflation ... generated its own snowballing, in which it was supposed to go away and it didn't go away." That tariff will cost Chris Larson, a co-owner of Mel-O-Cream, "about $4,000 per shipment per week," he said. And that used to be somewhere "closer to $2,000 to $2,100 weekly. Now it's going to move up to $4,200 ... for the exact same product." Goolsbee's visit matters because he's one of just 12 people in the country who get to decide what to do with interest rates. The Fed's rate-setting committee will next decide whether to cut or hold on Sept. 17, and the perspectives of businesses like Mel-O-Cream are instrumental in helping him determine his next vote. Larson's hope? That the Fed will cut interest rates, which would help Mel-O-Cream finance new equipment to cut costs in labor and blunt the impact of tariffs. "What is the cost of money in order to expand, to upgrade, to update? What do those things look like?" Larson said. "Those things do concern us, and we would love to see, as everyone would, the interest rates would come down." Goolsbee said he wasn't yet ready to tie his hands to an interest rate cut in September. "Let's get a few months of data before we make any conclusions. The hardest thing that the Fed ever has to do is get the timing right at moments of transition," he said Wednesday on NBC News' "Here's the Scoop" podcast. "I think as we go through this fall, September, November, December, all of those are live moments that we could be cutting rates." Government data Thursday showed that wholesale prices paid by U.S. companies rose much more than expected. Another measure, the consumer price index, showed Tuesday that inflation remained stubbornly high in July. The Fed's target for inflation is 2%, lower than the most recent consumer inflation reading of 2.7% and producer inflation reading of 3.3%. Even with those numbers, the market still anticipates a cut next month. President Donald Trump's sweeping tariffs on hundreds of trading partners around the world could affect the cost of most of the imports that businesses buy from overseas. With a myriad of rates as high as 50%, businesses may be faced with a new maze of rates and tariff bills, as well as the uncertainty that comes with the on-again, off-again tariff rollout. "The Fed, by law, is supposed to maximize employment and stabilize prices. So it's inflation and employment that are really the twin towers of how we think about setting of rates," Goolsbee said, underscoring the Federal Reserve's role in the broader economy. "There are parts of the job market where there's still basically labor shortages. It's very hard for people to find workers. And that's what you kind of saw here at the donut factory," he said. Goolsbee oversees the Seventh Federal Reserve District, which includes Iowa, much of Illinois, Indiana, Michigan and Wisconsin. Some of his colleagues, including Jeffrey Schmid, of the Kansas City Fed; Alberto Musalem, of the St. Louis Fed; and Beth Hammack, of the Cleveland Fed, are sounding similarly cautious tones about the economy. All three current Federal Open Market Committee voters have said in recent days that it's either too early to decide or that keeping rates steady for now would be their preference. The futures market predicts the Fed will cut by 0.25% at its next meeting. But some, including Treasury Secretary Scott Bessent, think the Fed should make a more dramatic cut, by up to a half-point. Musalem said Wednesday on CNBC that a cut that large would be "unsupported by the current state of the economy." Amid unrelenting attacks from Trump and his administration against the FOMC and Chair Jerome Powell, Goolsbee, who was an economic adviser to President Barack Obama, said economic indicators should drive monetary policymaking, not politics. "The FOMC and my own thinking are that what should drive interest rate decisions should be the economic conditions and the economic outlook," he said. "I invite anybody to look at the minutes or read the transcripts of the FOMC — the people on that body take extremely seriously that it is the economy that should drive the decisions. And that is what drives the decisions." "This is a committee made up of people from a lot of different perspectives. And as I say, they keep track of, word for word, what everyone says at the meetings. And you can look at it yourself."
NBC News
2 days ago
- Business
- NBC News
Chicago Fed President Goolsbee thinks central bank should wait a few months before cutting interest rates
What does a donut tell us about the state of the economy? Chicago Federal Reserve President Austan Goolsbee thought about that Wednesday as he toured Mel-O-Cream Donuts in Springfield, Illinois. Even inside a donut shop, the effects of tariffs on the economy can be seen. 'It's sort of surprising, because donuts seem like a very local product, and yet they get some ingredients like palm oil that are coming from Indonesia,' Goolsbee said. The Trump administration set tariffs on Indonesia at 19%. 'They have to now figure out what are the tariff rates, and the tariffs went up a significant amount. If that happens, that could have a multi-thousand-dollar impact on their operation,' he continued. But, he added, 'I hope it's not a sign of something more extended or broader in the way that the Covid inflation ... generated its own snowballing, in which it was supposed to go away and it didn't go away.' That tariff will cost Chris Larson, a co-owner of Mel-O-Cream, 'about $4,000 per shipment per week,' he said. And that used to be somewhere 'closer to $2,000 to $2,100 weekly. Now it's going to move up to $4,200 ... for the exact same product.' Goolsbee's visit matters because he's one of just 12 people in the country who get to decide what to do with interest rates. The Fed's rate-setting committee will next decide whether to cut or hold on Sept. 17, and the perspectives of businesses like Mel-O-Cream are instrumental in helping him determine his next vote. Larson's hope? That the Fed will cut interest rates, which would help Mel-O-Cream finance new equipment to cut costs in labor and blunt the impact of tariffs. 'What is the cost of money in order to expand, to upgrade, to update? What do those things look like?' Larson said. 'Those things do concern us, and we would love to see, as everyone would, the interest rates would come down.' Goolsbee said he wasn't yet ready to tie his hands to an interest rate cut in September. 'Let's get a few months of data before we make any conclusions. The hardest thing that the Fed ever has to do is get the timing right at moments of transition,' he said Wednesday on NBC News' 'Here's the Scoop' podcast. 'I think as we go through this fall, September, November, December, all of those are live moments that we could be cutting rates.' Government data Thursday showed that wholesale prices paid by U.S. companies rose much more than expected. Another measure, the consumer price index, showed Tuesday that inflation remained stubbornly high in July. The Fed's target for inflation is 2%, lower than the most recent consumer inflation reading of 2.7% and producer inflation reading of 3.3%. Even with those numbers, the market still anticipates a cut next month. President Donald Trump's sweeping tariffs on hundreds of trading partners around the world could affect the cost of most of the imports that businesses buy from overseas. With a myriad of rates as high as 50%, businesses may be faced with a new maze of rates and tariff bills, as well as the uncertainty that comes with the on-again, off-again tariff rollout. 'The Fed, by law, is supposed to maximize employment and stabilize prices. So it's inflation and employment that are really the twin towers of how we think about setting of rates,' Goolsbee said, underscoring the Federal Reserve's role in the broader economy. 'There are parts of the job market where there's still basically labor shortages. It's very hard for people to find workers. And that's what you kind of saw here at the donut factory,' he said. Goolsbee oversees the Seventh Federal Reserve District, which includes Iowa, much of Illinois, Indiana, Michigan and Wisconsin. Some of his colleagues, including Jeffrey Schmid, of the Kansas City Fed; Alberto Musalem, of the St. Louis Fed; and Beth Hammack, of the Cleveland Fed, are sounding similarly cautious tones about the economy. All three current Federal Open Market Committee voters have said in recent days that it's either too early to decide or that keeping rates steady for now would be their preference. The futures market predicts the Fed will cut by 0.25% at its next meeting. But some, including Treasury Secretary Scott Bessent, think the Fed should make a more dramatic cut, by up to a half-point. Musalem said Wednesday on CNBC that a cut that large would be 'unsupported by the current state of the economy.' Amid unrelenting attacks from Trump and his administration against the FOMC and Chair Jerome Powell, Goolsbee, who was an economic adviser to President Barack Obama, said economic indicators should drive monetary policymaking, not politics. 'The FOMC and my own thinking are that what should drive interest rate decisions should be the economic conditions and the economic outlook,' he said. 'I invite anybody to look at the minutes or read the transcripts of the FOMC — the people on that body take extremely seriously that it is the economy that should drive the decisions. And that is what drives the decisions.' 'This is a committee made up of people from a lot of different perspectives. And as I say, they keep track of, word for word, what everyone says at the meetings. And you can look at it yourself.'
Business Insider
01-07-2025
- Business
- Business Insider
A Federal Reserve president thinks fears of a 1970s-style stagflation are overblown
A Federal Reserve leader thinks that fears of stagflation are overblown. Speaking at the Aspen Ideas Festival in Colorado, the president of the Federal Reserve Bank of Chicago, Austan Goolsbee, pushed back on concerns that recent supply-side shocks, like tariffs and global military conflicts, could trigger a return to an era of double-digit inflation and sky-high joblessness. Goolsbee said that with unemployment near 4% and inflation around 2.5% and falling, he sees no possibility that tariffs or another supply-side shock could cause actual 1970s-style stagflation in the near term, referring to a time when inflation topped 13% and unemployment exceeded 8%. "There's definitely the possibility of both things getting worse at the same time," Goolsbee added, referring to inflation and unemployment. "And there you usually say, well, how long is each side's discrepancy going to last? Do you think it's temporary or do you think it's permanent? And how big is each side... that's the way I think about it." Goolsbee offered no forecast, but his remarks come as the Federal Reserve continues to hold interest rates in an effort to bring inflation back to its 2% target. While core inflation, which excludes more volatile prices like food and energy, is down from its 2022 peak, it has remained sticky in key sectors like housing and services. Despite mounting pressure from markets and President Donald Trump to cut rates, Jerome Powell, chair of the Federal Reserve, has said the agency needs to see stronger evidence that inflation is firmly under control, especially after several months of higher-than-expected price indexes earlier this year. In a post on Monday, Trump called the chair " Jerome 'Too Late' Powell" and said that people in the US "should be paying 1% Interest" in a social media post. The Trump administration is also looking into ways to replace Powell, though his term doesn't expire till next May. Powell's term as a member of the board of governors also doesn't expire until 2028. The White House did not immediately respond to a request for comments.
