Fed's Goolsbee rebuts claims of overheating economy

Federal Reserve Bank of Chicago President Austan Goolsbee said he doesn’t see convincing evidence that the economy is overheating despite a gangbusters September jobs report.

Speaking in an interview on Bloomberg’s Odd Lots podcast before Thursday’s consumer price index report, Goolsbee reiterated that inflation has cooled significantly and the labor market remains strong. Asked what keeps him up at night, the Chicago Fed chief said officials need to stay attuned to the risk that strong demand could reignite inflation.

At the moment, however, many measures show the labor market is cooling to a level that economists consider sustainable full employment, he said, pointing to the ratio of vacancies to unemployed workers, and the hiring and quits rates.

“I haven’t seen anything that is yet convincing that there’s a new trend that we’re not stabilizing at full employment, that we are in fact going back to white hot, overly overheated,” Goolsbee said in the interview recorded Wednesday and released Friday.

Policymakers last month lowered rates for the first time since the onset of the pandemic, cutting by a larger-than-normal 50 basis points amid signs of weakening in the labor market and as inflation cooled toward the Fed’s 2% target.

Data Thursday showed consumer prices rose by more than forecast in September, representing a pause in the recent progress toward moderating price pressures. However, economists said after the report that the Fed’s preferred inflation gauge — the personal consumption expenditures price index, which has been trending close to its target — will probably post a more tame advance when the data are released later this month.

A report last week showed stronger-than-expected hiring last month, quelling some of the concern that the labor market was slowing too quickly.

“If we could freeze it right there, that’d be a lovely picture,” Goolsbee said. Multiple months of further strong employment reports would alter his view of the appropriate path for rates, he said, but he cautioned against reading too much into any one data point or focusing too much on what the Federal Open Market Committee will do at its next few meetings.

“That’s smallish potatoes,” he said. “The big picture is inflation is way down, unemployment is up to a level that we’re happy with and the rates are well above what almost everyone on the FOMC is saying they think is the steady state.”

“Do you want to have rates be that much higher than where you think they’re going to settle, or does that endanger the pretty picture?” he said. “That’s kind of where my head is at.”