The US can cut rates if inflation stays around 2%: Austan Goolsbee

Maybe slightly talking over each other there. John Yellen, the church secretary of the United States, We're probably way past deciding what inflation really was and who's right or who's wrong on this. I did refer to the fact that when they took office, the bite administration was looking at 1.4% inflation rate. The president, of course, insists it's higher. The guy whose job it is to look at these things is Austin Goolsbee, the Chicago Federal Reserve Bank president. Kind enough to join us. Austin, always good to have you. You know, we could go back in time and look at where inflation was or was and it probably doesn't matter right now. What matters right now is this global trend to reverse that pattern of, of, of high rates and high prices. And we're starting to see cuts. Switzerland today cut rates for the second time. The Bank of England did not even though, you know, inflation there is now hovering around the desired 2%, close to where we want it and still nothing in terms of our cutting rates. What what gets well, as you know, Neil, the second-half of last year looked quite good in terms of the inflation rate, not about the price level, but we we had for the second-half of last year inflation at the 2% target. But we hit a bump in the road at the beginning of this year and in January we got a high inflation read. And so we just have needed to figure out is that a sign of a re overheating in the economy or is that just a blip. If we get more inflation readings like the one we just got, which were very strong, very encouraging, looking much more like the second-half of last year around 2%, then my view has been we can cut if you with our federal funds rate is pretty high historically. If you look at the real federal funds rate that is interest minus inflation, it's pretty high and you only want to be as restrictive as as that for as long as you have to be. If you are too long that restrictive, you're going to have to start thinking about the employment side of the mandate. You're going to have to start thinking about deteriorating real economy. So I'm optimistic, but what we need is to see progress like what we saw in that last month. So when you were referring to federal funds, right, that's the overnight bank lending rate. It's been hovering a little over 5%, about 1/4 percent. It's been in that rough range here and then it's been stubbornly at that range. But you know, market rates, the over which you specifically and your members don't have direct control, they have been coming down. So I guess it begs a question for you Austin, do you need to be at 2% the inflation rate you all of you desire or headed there? On other words, if you're at 3:00 or or just under three kind of rate cut one, one that's anticipated, at least one that's anticipated for this year, can that still happen? Well, that was a sophisticated question because it housed an ambiguity. If by that you're does it need to be that the 12 month looking backward inflation rate has already hit 2% before the Fed acts? I don't think it does. I don't know that the Fed has ever waited that long before it acted. What we want is a forward-looking. If in your question though you're asking might we declare 3% to be the target instead of two? No, no no, now you've you've violated the holy covenant. The 2% inflation target is a sacred vow made by the central bank to the citizens of that country that says no matter what the inflation is. When inflation got up to 9%, if you looked at expectations, they basically didn't move of with you. Ask people what will inflation be five years from now, 10 years from now? They did not move off of that target and that is because they trust, they put their trust in the Fed. So you got to finish the job before you can go look for a new job. So if 3% is not the new target, got it. All right. I didn't know I'd answer the Riddle in a conundrum or whatever you meant there, but I guess I did. But let me there we go. Let me ask you, you know, Donald Trump is no fan of Jerome Powell. I know they don't like to weigh in and out of personalities, but he generally thinks that the Federal Reserve will do anything in its power to help Joe Biden get reelected. You, you hear this talk all the time time. It's always risky for the Fed to move in election year, even though there's plenty of history where it has done exactly that. But I'm just wondering whether you feel that political pressure. As you know, Neil, when I became a member of the Fed, it was like joining the Nights Watch or something. I'm out of the elections business. What drives the Fed decision? And you'll see when the you can see the minutes and you will get a word for word transcript that will come out of every word said at the FOMC meetings. It's not about politics, it's not about elections. It's about the dual mandate that we're looking at economic conditions, and that is 100% and no less than 100%. And if it could be more than 100%, it would be more. I don't doubt it. I don't doubt it's our decision. You're a former top Obama administration official. A lot of people cynically said we got the job and to be fair to you, have not even given a hint of that, that you would do the Democrats bidding and that that was an unfair criticism. I have not seen it materialize in any way, shape or form with you. But are others similarly suited? Look, I appreciate you saying that Neil and nobody, we're not in the elections business. What drives the decision and what you're going to see in the word for word transcript of the debates is that it is the economic, the condition of the economy and the date. We don't want to do this if it's going to help Neil. The like I say the, the, the interest rate is high is historically restrictive relative to the inflation rate. We have a high federal funds rate, which is the, the rate that that we're setting. And what determines when that can come down is whether we are on path to 2% inflation and what determines that are the data. And there's no, there's nothing else we can do. If you act one way, one side says that's political. If you act a different way, somebody else is going to say that's political. All we can do is credibly announce what our reaction function is, say what we're looking at and what we're looking for, and proceed in that way. And that's what we do. Well, do you go to the grocery store or you and your family and you look at the high price and say, no, we can't cut. We can't. We can't cut rates right now. Everything is so expensive. And I know, let's say they're like me and your purveyor of Italian sausage. You're looking at that effectively having doubled. You must say I can't do it now, right? Yeah. And look, my as you know, the Fed, when we look at inflation rates, not the price level, but the growth rate of prices, we look at core inflation. We explicitly do not look at energy and food. That drive my mom crazy. She's like, what do you mean you don't look at the price of energy and food? The reason why we don't is because those are so volatile that they don't give you as true a picture of what's happening underneath. Got it. I just wanted to see if I could make you slip up and embarrass yourself. Austin Goosby, very good seeing you again. Thank you very much. They are great to see you. All right, the Chicago Fed president Austin Goosby on that and a whole lot more right after this.