Austan Goolsbee Is Worried the Economy Is Overheating

Talking monetary policy in Jackson Hole

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2:19Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy's still here in Jackson Hole. We are recording this, what is it? The 27th. I think that's right. So before Chairman Worsh's big speech, etc. But when we're here in Jackson Hole, we have to talk to as many people as we can about the state of monetary policy, the economy, central banking, all the good stuff we love to talk about. Yeah, definitely. And we don't play

2:52favorites on this show, but one of our favorite Fed presidents. We don't play favorites. What? If we were to. That's right. We're going to be speaking with Austin Goolsbee of the Chicago Fed. That's right. Literally the perfect guest, someone we've had on several times. So Austin, thank you so much for coming back on. Hey, thank you for having me. I'm the Chief Moose. Did you see any Moose? No Moose. I saw a bear. Tracy saw a bear. You saw a bear. Tracy saw a black bear. Yeah, a little black bear. Along with some of our producers yesterday. It's very exciting. I've never seen one here before, so. Hopefully not indicative of anything in the broader economy. There's so many places to

Assessing monetary policy restrictiveness

3:25start. How about a simple question? Right now, when you look at where the Fed has rates at, when you look at the curve, when you look at the state of the economy, would you characterize policy as restrictive right now? Depends what you think the underlying inflation rate is. Let's not forget, what matters is the real rate. Rate minus expected inflation or actual inflation over some period. In the long run, where do we think it's going to end up? I loosely think 3% rates

4:01with 2% inflation and 1% real is kind of an eventual landing spot. The real rate, if the inflation rate is 3% plus, the real rate is a lot lower than if inflation is headed back to target. Yeah. So you can't, I don't think you can really answer that without saying, I'm okay with waiting

4:38to see, but I'm a little nervous that the inflation side has, over the last six months, not been looking great. Got it. Not to get too technical right at the jump of this conversation, but when we- Just jump right in. But when we talk about the restrictiveness of monetary policy, I mean, we're talking about where it sits next to our star, and our star is unobservable at the best of times. Yes. And now we're in this environment where I don't think anyone would disagree that we have this huge structural change in the form of AI. Do we have any more confidence in the neutral rate of interest

5:09versus where we are in terms of restrictiveness?

Productivity growth and our star

5:12We love this. I love, you know, I was an academic for 30 years. So I love saying, let's get out of the world of theory. You know, let's get back. I always called our star, our Sasquatch. And, you know, somehow it feels with this as a backdrop because you can never see it until after it was left. And, you know, here was a footprint. And when I say that, it's because I don't think our star, while the concept

5:44exists, I don't find it helpful for me in determining, well, what should the next monetary policy move be? Because it's not observable. It's even in the best of times, not observable. That said, I think if you start thinking longer run, what does an increase in the productivity growth growth rate due to our star, I think it increases it because faster growth, you got to have a higher steady state interest rate.

6:20And I gave a speech last year, I mean, at the last Hoover conference that was kind of thinking about if you think AI is increasing productivity, it makes a big difference to what that means for the here and now our star. Is this expected or is it unexpected? So if it's unexpected landing on you, then inflation goes down. And in a way, people aren't adjusting their behavior in the short run

6:55and rates can go down. But if the bigger the hype, the more we're about to have a giant bounty that's going to come from technology, you could easily overheat the economy in the short run and you have to raise the rates. And we kind of live that through the mid to late 90s. Yeah, that's right. How about we maybe try to reverse, take the question from the opposite direction.

Decomposing inflation drivers

7:21So setting aside theoretical questions about our star, setting aside how we would measure restrictiveness. Let's just take your point. The inflation data is still warm. There are signs that it's going in the wrong direction, even if, you know, here, whatever. Why? How would you decompose the drivers of either persistently high inflation or the upward rate? We're still trying to figure out. I was saying before, even before Liberation Day, as the tariffs came in, I warned, you'll remember, let's be careful. We learned during COVID that if a supply shock

7:59that is supposed to be transitory, if it's big enough, can end up taking a lot longer than we initially forecast. And that was my fear that while one and done tariffs are supposed to be an increase to the price level, increase to the price level and a temporary inflation shock. Where was the evidence that that was true? We've been dealing with that to add a oil price,

8:31war-driven price shock on top of it before that one went away. That's a dicier proposition.

8:42Some component of the increase in inflation is from those two parts, tariffs and one-time increase in price of oil, which hopefully should go away as inflation. But if you look at services, that's not really caused from tariffs. That's not really caused from oil prices. That's a deeper level of concern. So in my, is it a decomposition? I'm hopeful that

9:17much of it came from those temporary slash transitory factors. I'm giving myself hives even using that word. And if so, then we should see it. It should go away. We can't, it can't be that each quarter we say, ah, yes, it's about to go away. Just not yet, you know, three months from now. And so that's why I was okay with, if we're get one or two readings of inflation that are moderating,

9:51it's perfectly fine to say, let's, let's wait a meeting or two meetings or whatever. Let's see if this is the heralded introduction of the, of the temporary part. So in a normal world, these shocks are supposed to be, again, using the dreaded T word transitory, like one-off levels to the price. And then they kind of fade away. I think it's fair to say in recent years, we've seen shock after shock after shock. Do you think that the central bank needs to start like incorporating that kind of uncertainty into

10:26its mandate? Just assume that the world's more uncertain. Or sorry, not into the mandate, into its thinking. Yeah. Into its thinking. Yes. I think that you're honest. It does feel like we're getting more supply shocks that the traditional world, the world shocks aren't the main thing happening. It's not commodity prices. It's normally the grubby reality of the business cycle, demand driven unemployment goes up when inflation goes down. Inflation goes up when unemployment goes

11:02down. When both of those things are moving together, like what happens with these supply shocks, there's not an automatic playbook of what to do. I do think that we at the Fed and the central banks all around the world should be contemplating at the least, what are you going to do if we're going to get more and more shocks? That's a slightly different, you kind of, you raise a second point, which is with the tariffs and with the war. Here, I think that has piled this uncertainty

11:39on top of itself. And I think that's what's led in the labor market to this kind of high, low hiring, low firing, which is not a normal combination. I think it's a combination that characterizes uncertainty. So yeah, we should start thinking that way.

AI investment and economic pressures

12:01Just on AI real quickly, look, none of us know what AI as a technology will mean for productivity. Hopefully, great things happen. In the here and now, though, there's another factor that people talk about, which is just there's an extraordinarily high amount of spending going on in the build out of it. And I'm curious on both the maybe like theoretical level, but also in a conversations that you have with businesses in your district level. Does that show up? Does it feel like, okay,

12:33if we look at supply chains, they are getting tighter, because data companies that are building this out are competing for real resources, whether we're talking about labor, materials, commodities, parts, and so forth? Yes. And you hear it from business executives. But in some ways, I feel like maybe too much. Interesting. That if you look at the price pressures coming from AI data centers, the build out of very high

13:04investment. This isn't the first time that there's been high investment as an indicator of economic growth. But the overall overheating of the economy is kind of the deeper question. Sectoral AI is going up and some other industry is competing for electricians and construction and complaining bitterly about that. That's not the same thing as the economy is overheating. It has to get out of its lane

13:38of just direct competition and drive up wages, drive up prices outside of just its lane. Because if this one going up leads this one to go down in the aggregate, in a way, the national unemployment rate and the national GDP growth rate tell you a lot about where you are in the aggregate economy. That said, you hear it. You go around the Midwest. The Chicago district is kind of heart of the

14:08Midwest. We're in Iowa. We're Cedar Rapids, Iowa. I'm like, what's the biggest problem? And they're like, the data centers are buying up all the land. They're driving up the prices. Nobody can construct, can do any construction. You can't get, you can't get an HVAC person. So it doesn't feel like we're far from what is the sort of traditional excess demand and outputs above potential. And that's

14:40driving up inflation. And if it does, back to your first question, then we're not restrictive enough. If that starts happening in the aggregate, we're not restrictive enough. I don't know how to say, is this restrictive or not restrictive? Everything's relative to something. And if inflation starts going the wrong way, driven by just old fashioned investment is so high and growth is so high that

15:14that we're getting that impulse, then I think it's not restrictive enough. It is true that people complain about not being able to get contractors like all the time. And now it's just, oh, it's the data center. No, exactly. So that is what I mean. That's filled into the boogeyman is if you can't find an electrician, I half expect people to be like, I need to go to the dentist. They can't see me for three weeks. Thanks a lot, data centers. You know, it's like.

Investment versus consumption growth

15:45Well, okay. What's the difference when it comes to Fed policy between an economy that's growing mostly because of consumption versus an economy that's mostly growing because of investment? Like how do you treat that difference?

16:00In the short run, it's probably not that different. Just in the business cycle sense of there are many different ways you could go. We've seen overheating from housing instruction, getting out a little faster than the economy can handle. We've seen consumer spending, savings rate go to zero, consumer spending is faster than economy can handle. We're seeing a business investment driven threat to more than economy can handle. In the short run, if it's

16:32demand driven, I kind of think it's not. Fed has a very unsophisticated tool. We can raise the interest rate, lower the interest rate. What makes it work is that usually the most cyclical industries are the most interest rate sensitive industries. So it kind of does make sense that the Fed be the tip of the sphere. If by that question, you're asking the deeper thing of, well, what does it mean long run? You hope that the investment will enhance potential output in the

17:08future. So then it would be different down the road, five years, 10 years, if productivity growth remains high. Um, but then we're also sort of back to our discussion. Well, what does that mean for rates long run? I actually think rates could be higher when the, if the growth rate is higher for all the best reasons. I mean that like the, that's the manna from heaven, productivity ization that people wanted. We would love that. We would love that normalization. If we could grow

17:423% a year and incomes are growing with, without inflation because of productivity growth at the same time, be a, let's be a little wary. I've been from early on highlighting, maybe some of this technology is raising the productivity growth rate, but we've now gotten six months in a row of pretty crummy productivity growth. So let's not all conclude before it's actually manifested that,

18:13that we've had a, you know, change of era. I want to keep speculating about what the future is going

Reflecting on the post-covid inflation cycle

18:18to be. I want to ask one more question about the past actually, because we've actually had a few different, over the years, we've had a few different versions of this conversation, this question, which is inflation has come down quite a bit from its peak in the post-COVID era. But there's this question of why, right? Because the unemployment rate never took off. It was a, it was kind of immaculate, except there has been significant housing cooling. In a different era, they used to say the housing market cycle is the business cycle. That hasn't been the case in several years

18:51from now. It's totally disconnected. Do you have any, sitting here in August, 2026, and you look at housing continue to be soft? You look at where inflation is, maybe signs of it gathering steam again from an elevated level. Do you have any theory of the case of the last few years of the relationship between what the Fed did, the hikes, and what they really did to the economy, and how much they contributed to taking the economy off the boil in 2022, 2023?

19:21Idrit, I thought you were going to go a different way back to the old, how much was supply and how much was demand in the rise up in inflation. Yeah, no, but I'm sort of talking about what you did, the aggressive rate of rate hikes. I think- What's the story? The aggressive rate hikes, what the shoe that did not drop, I think that supply was a major driver of the run up to inflation, and the healing of supply eventually was a major component of the drop to inflation. As long as you say that, as long as you're not trying to have it both ways, and both

19:57sides, it feels like in that debate, want to have it both ways in the sense they want to blame the run up on fiscal policy, say, but then the, and the fiscal and monetary policy, that it was all about stimulus, and then it, then it would say, well, why did it come down? Yeah. Then they want to say, no, no, that was, they don't deserve any credit for that. That was all from supply chain healing. I think it was loosely two-thirds supply and one-third demand then. I wasn't there when it went up, so I

20:37can't blame, you can't blame me, but I do think that the Fed's aggressive action permitted the one shoe not to drop that was hugely important, and that is, side note for Odd Lots listeners, you will know that historically, CPI of 2.3%, we kind of think correlates with a PCE of 2.0%. Even as CPI was pushing

21:13close to 10% inflation, if you looked at inflation compensation in the tips, it remained steadily at 2.3% CPI, so exactly 2% inflation target. To me, that was a piece of evidence that having a 2.0% inflation target was exactly the anchor that its advocates said, and I think it was critically important

21:46that the Fed not lose control. If they had lost the anchor, I think we would have had a heck of a time trying to get rid of the inflation. So, I think the Fed deserves a lot of credit at that moment, and then if you had plugged into chat GPT or some AI trained on all the data through history and said inflation is double, triple the target, what should the Fed do? It would have said jack the interest rate up to

22:2420% and have a huge recession because that's the only way you ever get rid of inflation, and I do think the Fed's understanding that there was a component that was not going to be permanent, and that the much maligned or mocked immaculate disinflation was in fact possible. I do think that the Fed deserves credit for recognizing that too. On the other side, they were slow out of the gate.

22:54There's no way you can't look back and say they weren't. They clearly were. What if you could use AI to research your investment portfolio and ask, how would a 10% decline in the S&P 500 affect my portfolio? Or, show me option strategies to help

23:24protect the gains in my largest positions. With interactive brokers, you can connect chat GPT or Claude to your actual investment portfolio to analyze your holdings, explore what-if scenarios, and research new investment opportunities. Access powerful investing tools trusted by individual investors, hedge funds, and financial institutions worldwide. Open and fund an account in minutes at IBKR.com slash invest. Restrictions apply. AI integrations provided by third parties. IBKR does not verify content generated by AI platforms. Some people treat chat GPT like some kind of smart

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Interpreting bond market signals

25:33So since you brought up tips, we should talk about the bond market, right? So we're at this weird point in time in the bond market where short-term rates are still pretty steady. The longer-term yields have been going up. Tips haven't really been pricing in that much inflation. So when you look at bond yields at the moment, especially at the long end of the curve, what is that telling you? If you're a central banker or you're one of the Fed heads, don't get into every blip in Twitter of the

26:03bond market. I kind of think you need a little bit of time to sort out what's driving it. Long yields going up. Could be people are expecting inflation. Could be people think that the Fed is going to have to be on a path that rates would be higher. Could be there's a lot more competition in issuance and just more bonds getting put out. And it's probably some combination of all of those.

26:34I don't put that much credence on the argument that there's a general freak out about the credit worthiness of the United States. Because if you really think that a country is going to experience default, the rates aren't whatever, 5%, you know, five and a quarter percent. That's just a historically pretty normal rate. So I think, look, we're watching that. It does have an impact. On the economy. But whenever you're looking at market reactions, you got to think a little bit

27:09about this reflection problem. That part of it is, what do they think the Fed is going to do? And so I don't like, but Paul Volcker used to tell me, our job is to act and the market's job is to react and let's not get the order mixed up. And that's kind of where I start. This is exactly what I was going to ask you next. Because Kevin Warsh has gone on the record saying that he thinks there should be less forward guidance from the Fed and that the market should be playing more ball versus being the referee. So he's suggesting that the bond market can send

27:44a useful signal through yields.

Reconsidering central bank communications

27:46I think you learn a lot from bond markets. As you know, the rules, I don't speak for anybody else or weigh in of what somebody else's message is. Personally, I'm speaking only for myself. I agreed with the, and I think it's healthy in a general way to refresh every once in a while, what any organization's doing and have a rethink. But on the specific thing of, should we have less forward guidance of saying, here is where we think rates are going in the next six months.

28:20If X thing happens, then I promise I'm going to vote for an increase, a cut, a blah, blah, blah. I think that's adds to volatility and threatens to get us into a tying of our hands that I don't think is healthy. So I have embraced this. Let's engage in less forward guidance.

28:41That's different from, should the market tell us what to do? I'm not a fan of it, but the Federal Reserve Act says by law, what we're supposed to look at, maximizing employment, stabilizing prices. It doesn't say anything about stock market. It doesn't say anything about bond market. So gathering information from them, I'm totally for using that as a, ah, then that's what we should do. I'm less. Well, speaking then of communication technologies, this, the thing that always makes

29:12me feel very old is reminding people that press conferences, dot plots and so forth are very recent innovations. Yeah, right. And they were, they were brought in because the Fed had a specific problem in 2008, 2009, et cetera. They solved the problem perhaps at the time. As we think, like, what is suitable for this new era? Could, could it say like, maybe it doesn't make sense to have press conferences. Maybe dots have outlived their usefulness. Maybe we don't need as many meetings as we used to have or something like that. And should all these things be on the table

29:46in terms of like- Yeah, look, you've seen the table. I always say the biggest table I've ever seen in my life is the FOMC table. There's room for plenty of stuff on that table. All of that should be on the table. They've, we've, we have this outside task force headed by, by outside folks that's contemplating a lot of these issues about communication. I think it's healthy. Let's say, let's, let's rethink all of those. I, I, you're right to remind the history. We were at zero.

30:17The interest rate was at zero. And the, if you plugged into the formulas, what should the interest rate be? It was like 96%. And so the fed at that time was facing unprecedented challenges and they were trying to, what do we, what do you do when you, when the interest rate is already zero and giving forward guidance in an environment where you're at the zero lower bound, where you're like, not only is the rate not Z we're not going to go up. It's not going to go up for years. It's not

30:50going to go up till the unemployment rate comes down. All of those things. Your predecessors can work at a time. The Evans rule, the Evans rule that each of those is a, is kind of a creative solution to a problem that they were facing. We're in a totally different environment. Um, and so we should, look, we should think through all of those. Joe, do you remember, I think when the fed first started the dot plot, we were both at Bloomberg. Do you remember? And there were, wait, we were not at

31:20both at Bloomberg. Oh, were we not? No, it was early. It was definitely earlier than that. I do remember. You were at Bloomberg. I was at Bloomberg. It wasn't weird. Well, I genuinely, but I remember there was like this all hands committee at one point to try to like figure out a way to display the feds dot plot. This part is true. Yeah. As it became clear that this became a thing, there was a very, a lot of efforts to sort of like formalize the presentation of the dot plot in graphical fashion. I thought you were going to say, this is like me, like our, my mom's generation. Everybody remembers where they were when John

31:52F. Kennedy, you remember the day the dot plot came out. I remember where I was when the BOE retired the fan charts. I was really sad about that, but that's it. Wait. So, okay. You talked about the fed was trying to solve a problem with rates at the zero bound in terms of communications. Like what is the problem that you think the fed is trying to solve now in terms of comms? Like why have the task force other than there's a new fed charity wants to think through some of these issues. I think we're not anywhere near the zero lower bound. So some of the logics of the

32:26communication tools that existed before we should revisit. And they, I've been on public record for years about the SEP. I don't like any time the, the members of the fed are making, are writing down what they're interpreting as predictions that don't turn out to be true. I think you pay a little price in, in terms of credibility that people can go back and look and say, wait, aren't you the bozos who

32:59said that, you know, the, by now the whatever inflation would be 2%, the unemployment rate would be something. So that it asks about one year, two years, three years ahead and the long run, do we really need all of that? That's what had my expressed starting point. Right. And in the dot plot itself, I find it can use a purpose. I think it's important that the world be able to understand

33:31something like the reaction function worldview of the members of the committee. And in a way the dot plot could serve as that, except the assumptions are not tied to the rate of the dots. So to quote the median inflation and the median rate, but that's not necessarily the same person. And so it's, it doesn't actually serve as a reaction function. So I think there's a lot of things you could, you could do with

34:07the, with the SEP. I'm actually glad you brought up reaction function as a distinct thing from forward guidance, because I feel like when people talk about the fact, they are distinct and they often get conflated. Agreed. And so people say like, we don't want forward guidance. And they say that, oh, we're not going to hold the market's hand. We're not going to say what we're going to do with the next two minutes. Like, great. That's, there's, you know, there's no reason for the central bankers to be pre-committing what they're going to do. Nonetheless, it strikes me as still valuable to have some understanding of how the central bank is thinking about its tools in relation to the data.

34:40And, and like, what do you see in the world? That is, that's where my head is. So when I, when I say forward guidance, I mean, literally of the form. Yeah. Here is what I intend to do with rates. Here is what I think is the appropriate rate move at the next meeting. And it's the tying of hands. Yeah. That's different from here is how I see the economy right now. What am I looking at? I'm looking at inflation. I'm, I really want to see that inflation is not persistent,

35:12that we are coming into that. They're related, of course, but they're, but they're different. But like, I think like, so for example, in the 2010s or coming out of the GFC, it was important for the Fed to communicate that if you get a hot inflation print here or there, we're not going to react too much because right now here is the way we see the economy. It's important for us to get the employment right down. Then comes 2022 or 23 and the Fed needs to communicate. You know what? We might get a little labor market softness, but we got to smash that inflation down. And that is our thing. To me, to my mind, that's reaction function. I agree with you. And I'm curious.

35:46And I'll give you an example. I'll give you a tiny microcosm. When I first got to the Fed at beginning of 2023, there was a lot of public discussion about the, can inflation come down? And people said, no, it can't come down because look at how fast wage growth is and wage growth. Wages are the lion's share of costs and services. So inflation can't come down until you see wages come down. I don't think that's correct, but I think that's gets the dynamics wrong. They're forgetting that wages

36:21are stickier than prices. So when shocks hit, it tends to be prices go up first. You see the price inflation, then the wage inflation, and then it comes down and then the wages come down. So in the short run, this is a reaction function, call it reaction function, but it's just, here's my worldview of what I'm watching in the economy and why I don't, if I see wage growth as high, that doesn't make me nervous that inflation can't come down. So just the last part of this question,

36:55Chairman Warsh's press conference have been different so far, have been different from his

Goolsbee's personal reaction function

37:00predecessors. They'd say, the Ford got in here, it's coming to an end, fine. I don't feel like I have yet to establish a handle on what his reaction function is right now. And I'm curious if you in the committee feel like you have a fear. You're constantly trying to get me in trouble. I'm not allowed to talk about somebody else's reaction function. And you're like, no, no, okay. Don't ask me. What do you think his reaction function is? I'm not going to tell you what the chairman's reaction function is. Go ask him what his reaction function is. I'm telling you mine.

37:35Every sell side analyst note that has come into our inbox for the past five or six weeks has been talking about the need for clarity on the feds reaction function or something about the reaction function. How would you, how would you speak for the committee? I'm not allowed to. I can tell you, here's what's the reaction function. Yeah. We'll settle for that. What I'm looking at is especially tuned to the inflation side. I thought front loading of rate cuts. The reason I dissented,

38:08I'm not a voter this year. I was last year. The reason I dissented in the last meeting of the year when they cut rates was I'm not comfortable front loading the rate cuts, counting on this inflation to be transitory and go away. I want some evidence that it is going away, that we are headed back to 2%. And if we get that, then I'm totally fine. Let's strap put on the seatbelts. We're headed back to the 3-2-1 that we talked about before. It not only did our progress, we were making

38:48substantial progress on inflation. Then it stalled out. Then it started going the wrong way. And now we've had a, not a blip, but a bit. We've had a bit of easing of inflation, but it's still, it's still iffy. And so my reaction function is heavily geared toward, I need evidence that inflation, that, that, that, that this inflation shock is, is not going to be persistent. Uh, and I'm okay with

39:26waiting as, as we're getting that. But if the evidence starts coming back, especially on services that it's high, it's going the wrong way, we're not making progress, then I'm going to be nervous. Wait, can I ask a personal question? You got to wait until you, I might not answer it. That's fine. But yeah, that's, that's, you're right. But what's it like when you've dissent? Like, is it, does it make you nervous to dissent? I was afraid like, uh-oh, are they going to come be like, the goons are going to come punch me? They didn't really. It was, I wasn't alone. Um, and

40:04people are, people, I found them respectable. I had laid out my criteria. I, I was expressing multiple times. Hey, okay, we're doing this, but I'm really uncomfortable with front loading too many rate cuts. And if you remember, that was the meeting where the government was literally shut down and we didn't even have the data. So, so my, my thing was, wait, let's not just keep cut. We don't even know what's in the data. Like let's at least get some data before, before we act. So

40:40there wasn't, I didn't get any mean and nasty calls from the chairman or, or the other committee members. So plenty of in the public, you jerk. But, um, but it's a deliberative body as we've talked about many times and people take the job real seriously and everybody's comes there with a worldview and it's okay. We, you know, we've seen a little more dissents lately than in the immediately preceding period, but by historical standards, there's still way fewer dissents

41:14nowadays than there were in the old days.

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43:16and processes that make healthcare easier, more affordable, and more effective. We're making it clearer for you to know exactly what your benefits cover. And to help you better manage your health, we're coordinating care between your doctors and your technology. We believe better, simpler healthcare is always possible. That's healthy optimism. That's Optum. Visit Optum.com to learn more. I'm going to ask a weird question, but are silent dissents a thing? And the reason I ask is because I saw a Goldman Sachs analyst note where they were talking about like, oh sure, there were three

43:49official dissents at the last meeting, but what about all the silent dissents? And we don't know what number those are at. And it's kind of funny to think about, you know, there's economists out there trying to count up something that's not happening. The thing is there's not happening and then there's not happening, which is to say not everybody gets to vote at every meeting. So to that extent, there are silent dissents if there are people sitting around the table who, if they were a voter, they would be dissenting.

44:22They just have no way to express dissent except to go out and say in public, here's what I think about the economy. So to that extent, of course, there are silent dissents. It sounded like a little bit they're making an argument though. So there's people voting differently than what, than what they think. Like that'd be a different type of silent dissent. I don't, that hasn't been my experience. But look, the minutes come out and you see, you know, basically what everyone says.

44:53And, and in a couple of years, you'll start getting the word for word transcripts. I know we just have to wait five years. I can't wait. Then we'll actually see. Well, this, this actually leads to my final question. No, it's four years, nine months.

Leadership shifts at the Fed

45:05Oh, okay. That's right. Yeah. Well, but this is actually a good, for my final question, which is that I think last year here at Jackson Hole, one of the questions I asked you, and it had to do with dissents, was the sort of like, the why are dissents generally rare? And is it because you generally see the view, did you see the thing similarly, or is the chairman particularly good at like more or less corralling the FOMC? Does it seem like right now? And I said both. Okay. But I think you primarily said that you, you credited Powell. Chair Powell was quite good at that. And, you know.

45:38So we'll read these transcripts in four years and nine months. But in the FOMC, does it feel any different than it did under the Powell era? It feels very different. I mean, just personally, it feels very different. And of course, when there's a different chair, who kind of does the, the chair always gives us kind of a summary at the end or, you know, where the chair's head is. It's always different. I only was there for one chair. It is kind of unusual that the former chair has now just kind of moved his seat over a couple of spaces.

46:14So he's still there. But I think it feels different. Interesting. And it's, the chair's new. I mean, you can see in the press conference. Yeah, he's just bringing, there's no stacks. The stacks are outside with the phones. You can't bring, you're not supposed to bring the stacks in there. Interesting. He just has a different worldview. I mean, you can see it in the press conferences. You can see it in the, in, in the talks. He just has a different worldview and put it. He's wanting to rethink a bunch of the, a bunch of the issues.

46:48He's publicly said he would like to get a little more, stir up a little more debate. Yeah.

46:56I think there was debate before. Um, and if we're going to have more, change the format of the meetings or, or stuff like that, I'm, I'm open to thinking those through. Powell's still there and you're sort of like two Pope's tension. Like, you know, I don't know. Again, now you're trying to get me in trouble on a different role. I'm trying, I'm trying to get you. I'm not allowed to say what, uh, what happens at the end. We'll read, we'll read about it. I just feel like the tone is, is there's a new person.

47:27There's a new, his new leadership, he's, he's trying to do it different ways. And like, he's, he's clearly getting his, his, bringing it into his own of, of how he wants to, to run this stuff. We're going to stop trying to get you into trouble. And I'm not going to ask what you think Warsh is going to say tomorrow. And again, we're recording this ahead of the speech, but like, what should we be looking out for? What would make you sit up in your seat and go like, Oh, wait a second. And this is different. Well, this is different than what?

47:57Then previous Jackson holes, previous fed shares, something to take notice of. I'm, I'm going to be paying attention to broadly defined reaction function. You know, how do you see the economy as the chairman and I'm hyper focused on this question of is inflation going to be transitory or is it going to be persistent? Because if it, if inflation is going to be persistent, then it's going to force action by the fed or by any central.

48:35If it's going away on its own, or if there's, if you even feel like it could go away on its own, then it puts us in a very different circumstance. So I think we're all going to be, be looking out for that. All right. Austin Glosby. Thanks for playing ball. Thanks for letting us try to get you into trouble. We'll really appreciate you coming back on Austin.

49:10Tracy, that was a lot of fun. I always love talking to Austin. Yeah. I appreciate that he doesn't mind our efforts to get him into trouble to try and cause a little bit of tension. He plays along. I appreciate it. I got to say, I know this episode is going to come out after Warsh's speech on Friday. But I'm so intrigued to see what he actually says. And now I'm kind of thinking, wouldn't it be funny, but not really, if you just spoke about financial innovation and payments for 40 minutes. Everyone is waiting for the chairman to say something about the state of the economy where the rate hikes are necessary.

49:42And he's like, well, I'm going to talk on theme. And I'm going to talk about the state of- Stable coins and Fed now for 40 minutes. Exactly. That would be extremely funny. Although, I guess we'll see. I'm glad we got into this point with Austin about the distinction between reaction function and forward guidance. Yeah. Because I actually do think there's a lot of sloppy discourse about it. And people allied the two. And I think it makes it, you know, if you go back to the green Spaniel, there weren't dots in those days. There weren't press conferences, et cetera.

50:12The statements were a lot shorter. The statements are- It's very clear that the Fed is capable of operating with far less sort of like, both literal communication and, quote, hand-holding about what it's going to do. I do think the deeper question is still what we got even with Austin, which is, okay, right now, as Austin said, he's more anxious about inflation. That's the sort of the burden is on the inflation side to improve. And otherwise, that would probably call for higher rates. And that is the reaction function question. And that is what we really haven't got yet from the chairman, at least as of the 27th right now.

50:48Well, I also think it's funny. I remember under Powell when the Fed deviated from some of its forward guidance and people were writing, this is the death of forward guidance back then. And now suddenly everyone's like, oh, it's dying again. I think this phrase was always kind of bad. And I think this actually gets to the point that maybe we didn't need those dots forever. They served a purpose or the press conference or any of it. And it was helpful to hear Austin describe it as like, yes, you plug the conditions of the time post-GFC into a Taylor rule and it gets you to negative 6%.

51:23That's impossible. The Fed can't do that. So then layers on all these other things. We've got to talk about that. We've got to talk about it. We've got to do whatever. Maybe these things really did not need to exist for as long as they did. And again, if maybe the task force says we really don't need all this talk and dots and all this stuff, that might be totally wise. This is the other question about tomorrow because Warsh could talk about findings from the task forces, right? It's an early indication. So I guess anything and everything from stable coins to Fedcoms is up for grabs.

51:55But shall we leave it there for now? Let's leave it there. All right. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Ehrman, Dash O'Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more All Thoughts content, you should check out our daily newsletter. You can find that at Bloomberg.com forward slash All Thoughts. You can chat about all of these topics 24-7 in our Discord, discord.gg slash All Thoughts.

52:26And if you like this conversation, if you enjoyed the video, then please like or leave a comment, or better yet, subscribe. Thanks for watching or listening.

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