Society for Advancing Business Editing and Writing Annual Conference
At the SABEW Annual Conference held in Chicago on April 19, 2024, Austan D. Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago, participated in a Q&A moderated by Nick Timiraos, chief economics correspondent for the Wall Street Journal.
Below are planned talking points Goolsbee prepared for the event and shared with reporters in advance.
The views expressed below are those of President Goolsbee and are not necessarily those of the Federal Reserve System or the Federal Open Market Committee (FOMC).
The U.S. economy made substantial progress in 2023 on the Federal Reserve’s dual mandate of maximizing employment and stabilizing prices. Inflation had one of the largest drops in the last 50 years and did so with solid growth, low unemployment, and no recession.
So far in 2024, that progress on inflation has stalled. You never want to make too much of any one month’s data, especially inflation, which is a noisy series, but after three months of this, it can’t be dismissed.
I am still hopeful that we will again see a return to improvement on inflation in the months ahead, as our restrictive monetary policy continues to curb inflation pressures and the economy continues returning to pre-pandemic norms.
At the end of the day, we will get inflation back to target. I always say that the first rule for data dogs is that when you are uncertain, keep sniffing. Right now, it makes sense to wait and get more clarity before moving.
We were at our 2 percent target before Covid, but not because inflation of everything was 2 percent.. Housing was around 3.5 percent, services 2.5 percent, and goods –1 percent. Much of the improvement in inflation last year came from positive supply developments. As the supply chains healed, goods inflation returned basically back to pre-Covid rates. Most of that supply healing is now complete.
Part of the supply side benefit last year came from increases in labor supply, in part from immigration and in part from higher participation rates of many groups. The impact of that will likely continue to help the economy this year. While we saw deterioration in services inflation last month, there was surprising improvement over the course of 2023—it remains above pre-Covid trends, but there may be more space for progress.
That leaves the main short-run problem as I see it, which is persistently high housing inflation—still much higher than it was pre-pandemic. Looking at market data on rents for new leases, I’d say housing inflation is supposed to have been falling. If it doesn’t, it will be hard to see a smooth path back to our 2 percent inflation goal.
As we have seen strong gross domestic product (GDP) and jobs numbers, we need to determine if this is a sign of overheating driving up inflation. But let’s be careful: As I have said before, when there are supply side developments (for example, higher productivity growth, supply chain improvements, or increasing labor force participation or population growth), aggregate numbers are not great measures of overheating.
There are crosscurrents at work. Not all the data suggest overheating in the labor market. The ratio of job openings to unemployed workers, the voluntary quit rate, the growth rate of wages—each of these seems to be returning closer to the pre-Covid reading.
Given the strength of the labor market and progress on easing inflation seen over a longer arc, I believe the Fed’s current restrictive monetary policy is appropriate. Ultimately, the proper policy going forward will depend on the data.
