Chicago Fed President’s Take on the Economy and Monetary Policy

Austan Goolsbee, the Federal Reserve Bank of Chicago (Chicago Fed) President, shared enlightening thoughts on today’s economy, including this week’s CPI reports and impacts from the UAW strikes, during the Detroit Economic Club meeting on Nov. 14, 2023.

As the U.S.’s central bank, the Federal Reserve is responsible for nonpartisan monetary policy and financial system stability through a dual mandate to maximize employment while simultaneously minimizing inflation rates.

Goolsbee explained the role of the Chicago Fed within the national Federal Reserve system, which serves as the “bank of banks” to the Seventh Federal Reserve District, which includes Michigan. This “art and science” job includes conducting monetary policy, regulating banks within the district, and conducting various industry and regional research.

The Detroit Regional Chamber’s President and Chief Executive Officer, Sandy K. Baruah, was the interviewer during the discussion. In January 2023, Baruah was appointed by the Chicago Fed’s Board of Directors to serve a one-year term as the chair of the Detroit Branch’s Board of Directors in 2023.

Earlier this week, reports showed that U.S. inflation slowed last month, a sign that the Federal Reserve’s interest rate is continuing to cool down. According to Goolsbee, the U.S. may have experienced the most significant drop in peacetime inflation without having a recession in about a century. This is due to positive supply shocks, strong productivity growth, and the “openness, transparency, and credibility” of the Federal Reserve to get inflation back on track.

“That’s what I call the ‘golden path.’ That’s more than a soft landing,” Goolsbee said. “And that I believe is the testament … of the Fed itself. That … even as the inflation rate was hitting 9%, the Fed said, ‘we have a target, and we’re going to get inflation back to the target.’ And the market believed [it].”

Later, Goolsbee also mentioned how the U.S.’s current GDP has recovered higher than the Federal Reserve estimated in 2019. Further, he said inflation has come down the most in the U.S. compared to almost every other “advanced” country.

Goolsbee also touched on how various international conflicts, or “external shocks,” are heavily considered when determining action and rates. He recalled 1990 and 2001 when soft landings were easier to achieve than the current situation. He also added external shocks, such as significant increases in oil prices and adverse price shocks, can lead to “stagflation.”

“I try as much as possible to keep Chicago Fed out of geo-politics. [But] if the war in the Middle East spreads and started dramatically driving up the price of oil, [then] we’d have to take that into account,” he said. “In a world where external shocks are driving [the rate], it’s really hard to forecast [it].”

Later, Baruah asked how the UAW strike and higher wage negotiations could ripple through the economy. Goolsbee explained that the seventh district’s research team analyzed the impacts of all the automotive-related strikes in recent history, as its specialty is the automotive industry and Detroit’s economy. The research results were surprising because of the GDP’s quarterly, not monthly, assessments.

“The answer is that most strikes don’t do anything on the national level because most strikes don’t last very long. So, if the [current] strike lasts for a month … it goes down for a month, but then it goes back up.” Goolsbee said. “I think it’s mostly not rippling through the economy because the strike didn’t end up expanding super far. So, knock on wood, that’s where it remains.”

Photos credit: Rob Widdis, Detroit Economic Club