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Chicago Fed President shares his outlook on inflation and rising interest

ARI SHAPIRO, HOST:

This week the Federal Reserve made news for what it did not do. The last 10 times it met over more than a year, the Fed raised interest rates. On Wednesday, they pressed pause on those rate hikes. Eleven people took that vote. And one of them is Austan Goolsbee, president of the Federal Reserve of Chicago. Welcome back to ALL THINGS CONSIDERED.

AUSTAN GOOLSBEE: Ari, thanks for having me back.

SHAPIRO: This was a unanimous decision not to raise interest rates. Economists famously don't agree on anything, so what did all 11 of you see that satisfied the group?

GOOLSBEE: Well, I'm not supposed to speak for anybody else on the committee, and I don't. It's been such a strange several years in the economy, and everybody knows that. COVID looked nothing like any previous business cycle. Coming out of it doesn't really look like any previous business cycle. And I think of it as a reconnaissance mission pausing now to kind of go scope it out before charging up the hill another time.

SHAPIRO: What specifically are you scoping out?

GOOLSBEE: The Fed's job by law is stabilize prices and maximize employment. And so there are conflicting pieces of evidence coming in in the economy. Are we too hot and need more? Have we done enough by raising the interest rate five full percentage points over the last year? - and so GDP, employment numbers, breaking out the inflation numbers to get a sense of our goods prices coming down, our services prices coming down.

SHAPIRO: Let's take just one of those items 'cause on Tuesday, we got an inflation report where the headline looked really good. The top-line number was down to 4% from nearly 5% a month earlier - still way above the goal of 2%. But how much confidence should we take away from that?

GOOLSBEE: Not much. I mean, you should never take confidence away from one data point. One data point is no data points. You need to see a little bit more of a trend, and you need to be able to spot through the waggles. But look. We're going to do it. The North Star that the Fed is trying to do is get the inflation rate down without starting a big recession, and that would be a triumph.

SHAPIRO: Do you take the current low unemployment rate as evidence that the economy can handle high interest rates? The job market is really strong right now.

GOOLSBEE: Yes, that's partly behind my thinking of why the interest rate has come up as much as it has. There is still - I guess I'd call them crosscurrents in the data. So if you look at the jobs numbers, we're putting up 300,000 jobs a month. When the unemployment rate is already as low as it is, it almost seems like it should be impossible. That makes the job market feel extremely hot. At the same time, if you look at the total hours worked in the economy, that's been flat or even declining, and self-employment numbers have come way down in recent months. The last thing you want the committee to be doing is just looking at one month's numbers and say, ah, let's spin on a dime. Let's change it based on one month of information. That's what makes it hard, but that's what we got to do.

SHAPIRO: That phrase crosscurrents in the data sounds like a very academic, dispassionate way of saying, this is really confusing, and even the experts don't really know what's going on.

GOOLSBEE: (Laughter) Yes, yes. I think that's true. And it's worth noting, again, everybody is trying to figure this out. Just look around the world. All the countries are dealing with this very strange moment. And now as we've come out of COVID, the degree of pent-up demand plus the changes to our lifestyle and our work styles, of people working at home instead of coming into the office - how does that affect the price of housing? How does that affect the price of office and commercial real estate? All of these are things that are very unusual. And so we're just going to have to play by ear, I guess.

SHAPIRO: So the next meeting is in July, when there will be another decision about whether to raise interest rates or not. What are the top things you're going to be looking at between now and then as you try to make this decision in an informed way?

GOOLSBEE: I mean, for me, the forecast is pretty benign. And the question really is, are we on that golden path or not? And so whether goods prices start coming down as we've expected they were about to and whether housing prices, the inflation rate starts coming down as we've kind of been expecting - those ones are critical - and then, on the other side, looking at the job market and trying to figure out, is it heating up, or is it cooling off? We had clear stress in the banking system. There's very clear evidence that banks are tightening their lending standards, and the impact that that has is also going to be really on my mind.

SHAPIRO: Austan Goolsbee is president of the Federal Reserve of Chicago and a voting member of the Fed's rate setting committee. Thanks a lot.

GOOLSBEE: Thank you, Ari.

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Ari Shapiro has been one of the hosts of All Things Considered, NPR's award-winning afternoon newsmagazine, since 2015. During his first two years on the program, listenership to All Things Considered grew at an unprecedented rate, with more people tuning in during a typical quarter-hour than any other program on the radio.