Transcript of Inside The Fed and the Future of Interest Rates and More with Austan Goolsbee, President of the Federal Reserve Bank of Chicago

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This is very exciting, this mashup.

I love a money rehab, Mo News mashup.

The first ever, but not the last.

Definitely not the last. I have the conversation we just had with Austin Gullsby, President Austin Gullsby of the Chicago Fed.

Yes. Show your deference.

What were President Gullsby, once we get into this, but once named the funiest man in Washington.

Which is a very low bar, by the way.

It is a low bar, right? It is a low bar.

But he is hilarious.

He is funny. But it was fascinating, Nicole. He is one of the handful of people on Earth who makes the decision when it comes to the Fed interest rate, and he took us inside the room.

Yeah, I thought that was fascinating because It's a place that we don't get access to. We don't get access to the Supreme Court. We don't get access to these super fun FOMC meetings, a Girl Can Only Dream. But to be clear, when you called him a President, the way the Fed works is that there are governors, and They get to vote on things like interest rates, and then there are rotating bank precedents. The New York Fed bank President always votes because they cover Wall Street. But then the other bank presidents rotate. So right now, Austin is voting in this big meeting that's coming up that's going to decide interest rates, which everybody cares about.

He described how you have to check your cell phone at the door. Then he took us into all of the numbers. He's a self-described data nerd. He was taking us through the numbers and all the considerations they have as they make this hugely consequential decision when it comes to interest rates, the impact it has on jobs, the economy, productivity, inflation, And so I found that perspective really fascinating, and I hope it translates to the listeners here.

Yeah, I hope nobody falls asleep because this is really important. Can you give the context of why, just as a refresher, BLS matters? What is it? What's the deal with everybody caring now about the Fed? I mean, you and I have covered this for 100,000 years, and not once, not ever do I remember this much interest in all the inner workings of the Fed.

Well, one of the reasons it's gotten so interesting, and it's something we attempted with him but knew that he wouldn't dive too deep, is that there's a certain individual these days who is particularly interested with what the Fed does. His name is President Trump. He posts on social media about it. He was actually one of the only presidents ever who has actually made the trip down to the Fed recently to be in person with J. Powell, and he's been very clear that he wants interest rates lowered. We dove into that. But some of the data that they have to interpret going into this is also something that President Trump has been particularly interested in, which is the jobs number. In fact, he thought the revision was so significant recently that he fired the head of the Bureau of Labor Statistics. We talk about that, and that's one of the questions I had for Goolsby here is that, do you trust the numbers that you're getting? The President certainly is critical of it. Others are critical of these revisions. Is there a better way to be doing things? So when it comes to that, and of course, again, the President's interest in the Fed has gotten to the point where recently he is He's attempted to fire, in limbo right now, but he fired a Fed governor, Lisa Cooke.

So she'll come up in this podcast. And that's another question we had for President Goolsby was, what do you make of this? He's firing people. How does what's happening at the White House impact the decisions you guys are making over the Fed?

We didn't ask if we should call him President or doctor. He has a PhD in economics, so he is a doctor. I wonder if he raises his hand on a plane when there is a request for a doctor.

Is there a doctor on the plane? Yes. No. Dr. Gullsby. Dr. Gullsby. Can you assess the condition of the patient? He's like, Only if the patient is the nation's economy, I cannot do much for this lady.

He was Really, his prognosis overall, I think, was pretty positive. He really settled in on where he thinks interest rates should go. We'll have to check the internet, but I don't think he's done that yet, but he did it here.

I think you broke some ground there, Nicole. I think that people should listen to this entire episode. Again, I think we have a lot of listeners who are nerds out there. I think the conversation is interesting. I think he keeps it relevant. He definitely uses a lot of metaphors. We talk about dragons and tunnels and nightwatch.

We mixed some metaphors, and it hurt my literary heart, but generally, my economic heart was so glad.

We all have Chicago connections, and so we We get into that as well.

It has been such a wild time to be a member of the Fed. Honestly, I can't even remember a time where there's been this much focus on all the players of the Fed. No offense.

Can you? No. I mean, it's been highly unusual. Maybe the economy was so unusual. This is one of the strangest five-year periods, most unprecedented five-year periods for the economy ever. So maybe that's what makes it weird for the Fed, too.

It is pretty weird. I mean, the next Fed meeting is also a really big one, September 16th to 17th. Can you tell us a little bit about what goes on in these meetings? It's one of the few places that we don't get to see inside of. So can you take us in the room where it happens, so to speak?

Yeah, look, if you're an econ nerd like me, going to the FOMC meeting is just about the coolest thing there is in the world. You go in a huge room, biggest table I've ever seen in my life. We sit around the table, the shades come down so nobody can spy and see what's being said.

Do you have to give up your devices?

You have to give up your devices. I, famously, I was on the Fed for five minutes. I'd been there five minutes in my very first meeting, and somebody's phone goes off. It's begun. They're just taking the role. There's all these formalities that they at the beginning. I was like, What idiot brought their phone in? I realized, Oh, no, it's me. I was like, I'm sorry, I'm sorry, I'm the new guy.

Did you get a time out or did you get in trouble? What happened?

Well, I got a little trouble, but they got Nothing had happened yet, so I didn't get in that much trouble. But that never happened again. They go around the table and day one is about the state of the economy and day two is about what Which we do with rates. Jay Powell is going to say, Here's what I think about the economy. Then if you're going to walk down and, President Musalem, what do you think about the economy? President Goolsby, what do you think? It's a deliberative body It's got a formal aspect. After some time, the transcripts will come out. If you're really into this thing, you can go read word for word what happens at the meetings. But it's a very important, deliberative body, and people are coming. They built the Federal Reserve in the Federal Reserve Act to have independent thought coming from all around the country. That's why we have these 12 reserve banks sprinkled all around the US. People come from very different backgrounds and very different perspectives. It's been pretty great.

I mean, you said J. Powell. Do you call him J. Powell?

I call him J. Powell. I started calling him Mr. Chair, But he insists on J. That's what I call him. In the transcripts, I will say Mr. Chair.

That's very official. But off the record, it's J or J. Powell.

Off the record, it's J or J-Pal.

Now, obviously, Austin, we get information so, so quickly now. Some say these meetings aren't necessarily in line with the speed of information. You guys are sitting around this big, massive table. Banks, investors are setting prices every second. So by the time you guys are meeting, potentially the stuff you're talking about is old news. I assume you guys are looking at some exciting new data that the rest of us don't already know.

I'm sympathetic to that critique. You said some people, but is it you? You may agree with that.

I feel like we're in a time where the speed of information is light speed, and you guys might be a little slow.

That's always an issue from central banks and has been from the beginning, that whatever is Whatever is the speed of the data and whatever is the speed of the economy, that's on a different timetable than the speed of the central bank. But the only place that is an objection, it's not really an objection, it's an observation. The timetable of traders and the stock market and the social media and the instantaneous, that's not the timetable of the central bank, and you don't want the central bank to be on that timetable. Because the most important thing that the central bank's got to do is figure out the through line and be the steady hand. If you plot the If you look at the graph, I'm sure you've seen it, of what does the market think the interest rate is going to do, it's up, it's down, it's wiggles around. It's crazy because the business model of a trader is to get the to get the information as instantly as you can and to try to process it as fast as possible. If you look at the actual rate, it's much smoother. I think it should be smoother because this steady hand and figure out the long view, That's the job that the central bank has to do.

That's where I do think having a committee of people who are coming from different regions and coming from different backgrounds is actually pretty effective at figuring out a through line in a that just the straight up instant reaction is maybe not as good.

Will you go in there, Austin, and have a certain idea of what you think needs to happen and then be convinced by the arguments of the other? Is there a real robust debate that happens there?

Sometimes it's not... In high school and college, I was a big debater, and I used to debate Ted Cruz when he was in college. It's not a debate It's more each person giving their thoughts. There is a robust debate that takes place across meetings. We'll come in and each person will speak their peace. Then we each bring a plus one research director or something, and they will write down what everyone said. Then we'll come back. As a group at the Chicago Fed, we'll try to process. Here were the arguments made by the others. Do we agree with that or not agree with that? What should we be on the lookout for in the data coming up? So one of the issues coming into September, as you know, is have we defeated the inflation dragon or is it still under there potentially coming back? And these issues like, well, there's been less inflation on goods than you might have thought from tariffs, but now maybe the inflation is rising on services. Thoughts like that might come up in the discussion, and then we'll come back and be like, Here's what we're going to look out for.

Then at the next meeting, we have that debate. I'd say it's robust, but it's not like, How do you answer, Moshe, to what Nicole just said. It's not like that.

The core debate I know that's been there for a bit now is you referred to the Inflation Dragon. There's also the Jobs Dragon. There is the Growth Dragon. I don't know how many dragons you guys have. The Dragons. There's a lot of dragons, and the solution for one dragon is different than the solution for the other.

That's the worst. That's the evil. But isn't like Wizard of Oz, there's good witches and bad witches. The same is true for dragons.

Then you got the Stagflation dragon, which is a combination of a couple of dragons, right? And so curious, as you go into the meeting right now, is it more an art than a science? Is there one that you're more worried about than the other? How do you weigh both of them, given the ramifications here, both domestically and for the global market?

This is the hardest part of the job. This is exactly what the central bank is grappling with. You've highlighted multiple dimensions on what makes the job is simple to understand and not simple to carry out. That is, the law, the Federal Reserve Act, says that when setting monetary policy, we're supposed to follow what we call the dual mandate, which is maximize employment and stabilize prices, which the Fed has interpreted stabilized prices means get the inflation rate to 2% and keep it there. In normal times, normal business cycle times, there are booms and busts. When you're in booms and the economy tends toward overheating, that tends to push up the inflation rate, and unemployment will be very low when inflation is high. When you're experiencing recession, unemployment will be high and inflation will be low. We developed, not just in the United States, but all central banks, developed an arsenal of tools, tighten or loosen the screw of interest rates to offset what's happening in the overall economy. Things get interesting when stuff starts going wrong simultaneously on both sides, or you start getting shocks that are and things don't look like a normal business cycle.

That, of course, is what happened in 2020, in '21, in '22. We're getting pandemics, supply chain shortages, a huge escalation of inflation that drives everyone crazy, then the hottest job market, tightest job market we've ever experienced. We're slowly working through and trying to answer At the answer to the question, are we back to normal? There's a town in Illinois, as you know, Normal, Illinois. Have we gotten back to normal? Normal is a twin city with Bloomington. So as I phrase it, it's like, Are we back to normal? Are we still in Bloomington? That's the key.

The home of Illinois State University.

That's right. That's right. Good for you, Boj.

Listen, as a Chicago- That's right. Born and raised Illinoisian, I think a lot of pride in the land of Lincoln. A lot of fun facts. We could do a separate Trivia Hour, Austin, on Illinois. Okay. But back to the topic at hand here.

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All of what we've discussed here, Austin, comes against the backdrop of a president who has taken on, you could say, a historic interest in what the Fed is doing, but also is historically vocal in what the Fed is doing. I imagine you've been watching all the various headlines. First, I want to ask you about one of the people who's going to be at that Fed meeting, Lisa Cooke, presumably. What's been going on there, the firing, and what you make and how you handle your job, given the interest and the way that President Trump has been trying to push you guys in a certain direction.

I've been at the Fed for almost three years. I was a research economist at University Chicago for 30 years before I got to the Fed. I was always a firm believer, as virtually every economist unanimously is, in the importance of Fed independence, that a central bank needs to be independent from political interference or else inflation is coming back, growth is going to be slower, the unemployment rate is going to be higher. Just look around the world at places where they do not have Fed Independence. It's a mess. That includes countries where they had it and then they got rid of it. It's like the day they announced there's not Fed Independence, all hell starts to break loose. It worries me having nothing to do with partisan whatever. You become a sworn member of the Federal Reserve, you're out of the elections business. But it's important that we remember that Fed Independence is critical. The reason why the governors are appointed to 14-year non-overlapping terms and the reason there are 12 Federal Reserve Bank presidents who are not political appointees, they are chosen by local boards of business people and civic leaders to represent their region.

The chair is not on the presidential cycle. All of these things tell you that when they created the Federal Reserve, as today, people were deeply uncomfortable with Washington, DC, plus Wall Street from controlling the whole US financial system or setting interest rate policies with things in mind other than the dual mandate. What should drive interest rate policy should be the economy. What are the prospects for maximizing employment and stabilizing prices? All of that's the long backdrop to say, I'm just trying to do my job as best I can to represent this region in the Midwest, and I base all of my decisions about the interest rate and monetary policy on the state of the economy and the economic outlook. My experience with everyone around that table, whether they were appointed by Democrats, Republicans, or our non-political appointees like me, they take that job very seriously. I think whoever comes on changes the composition of the committee changes. But I would be very surprised if as people become sworn members of Federal Reserve, they don't take the job real seriously.

Are you worried about the rhetoric or are you saying here that the members of the Fed, you guys have blinders on and no matter what is true socialed out or tweeted out or announced by the President, it has no effect on your decision?

You didn't know, but the way you asked the question would get me in trouble to answer, which is nobody on the FOMC is allowed to speak for the committee or for anybody Nobody else on the committee. They can only speak for themselves. Got it. I like to think that I'm the most omnivorous data consumer that is on there, but I'm one member of what I call the Data Dog Caucus. Anybody who's not on the committee can have any opinion they want. I try to pay attention to the opinions of informed people and what their arguments are about where we are in the state of the economy. But the only thing, and you can read the minutes yourself and you'll get the transcript and you can read word for word what's on people's mind. You're going to see. What's on their mind is not elections and politics. What's on their mind is what's the state of the economy, what's happening to growth, employment, inflation, et cetera.

So you, Austin, one man, are not concerned that the President says he seeking a majority on the Fed's board? What do you make of that with this implication that you made of the last role?

I'm not a pundit. I know that, as I say, the composition of the committee changes over time. We have a structure that's as insulated from politics and political interference as as possible. I just reiterate, it's crucially important. The Secretary of the Treasury, Bessant himself, said he wants the Fed to remain independent. Economists are unanimous. The Fed must be independent. If it's not, inflation is coming back.

Well, Ray Dalio, who was just on the show, recently said that with huge budget deficits, and I'd love to make the linkage in just a second, a strong independent Fed was hugely important. I mean, don't you love being in agreement with Ray?

I do like being in agreement with Ray. We don't comment on fiscal policy, but I will say that the canonical test case, definitional why is Fed Independence important, it is precisely so that in the, would you call it an arms race? In the economic literature, if you have a heavy fiscal expansion, you want to be able to convey to the world that that political monetize the debt argument will not carry the day in the central bank. If it does, that's why inflation comes back and long interest rates go up and a bunch of things start to go wrong in an economy. This is not just a theoretical. There are countries that did this. If you go look in countries where they do this, it often ends very badly. We should It will not be going there.

Well, that, I think, is what Ray is talking about. That's what we're saying. If short end of the curve goes down, it floods the market with liquidity, increases government spending. Eventually, that trickles out to the long end of the curve, and that's what Ray has been worried about for a very long time. Do you think that that hurts the government when it comes to financing our national debt? If it becomes that much more expensive? I mean, how worried are you or how worried should we be about the debt.

As I say, it's not my place on the monetary policy side to tell Congress or the President or whoever what tax policies they should set, what fiscal policies they're going to set. You've seen Chair Powell say at press conferences, and you just go pick up the CBO report, you know that the long run fiscal position of the United States, while being better than most rich countries, is not fiscally The debt to GDP ratio continues to rise. We're not at some stabilized debt to GDP ratio. My own thinking is that that is not... That's It sounds close to the monetizing the debt argument to say, well, should the Fed change the interest rate to make the debt less costly and make it easier to run debt? That is the fiscal dominance monetize the debt type argument. That's not in my head. That's not how I think about it. I can't speak for the committee, but I think it's important, in my mind, for a central bank not to think that way, that we're going to go off of what the conditions are. We're not trying to make it easier or harder for them to make their decision.

When we were talking about the Dragons earlier, the Debt Dragon is not one that you're trying to fight.

The Dead Dragon, that's not our job to fight the Dead Dragon. That's straight up fiscal policy, and the President and Congress and the American people got to decide what they want to do. I always say, Look, you're an Illinois guy. There is no bad weather. There's only bad clothing. And so you tell us the conditions, and then our job is to figure out the jacket. And the fiscal policy are the conditions on this one.

Well, listen, I'm an LA lady who went to Northwestern, and so I figured out that I needed to buy socks for the first time when I was 17 years old. But speaking of all that data, commerce just announced that they were putting GDP on public blockchains. I mean, should that be the rule and not the exception? Is there a better way to get this data that you cite?

I heard that, but I don't exactly know what that means. You're never going to hear me say, throw some data away or pay no attention to it. I'm an absolute omnivore of data. I'll take whatever you got because getting more data helps you figure out the through line, my view. To the extent that everybody, private sector and public sector official data, have gotten noisier because people don't respond to surveys as much. Things on the internet, they just have a lot more noise. One worldview says, Oh, therefore we should throw it away or pay no attention. In a world where every data series got noisier, I want more series, not fewer series. Putting the data on the blockchain, if that connotes we need more real-time measures, I basically agree. I love the real-time measures. Before I was ever at the Fed, I was involved with a friend of mine who teach at Stanford, Pete Plino. He and I helped Adobe create this online CPI, called the Digital Price Index, and it tracks online inflation, and you can do it daily. You could do it minutially if you wanted, and you had it at a granular level of detail.

I find the Two data sources really exciting and far noisier than the official numbers are. I think people want to be a little careful if they go the extra step and say, Well, if we put something on the blockchain, then maybe we don't need the unemployment rate anymore, or maybe we don't need to do the first revision. I think that's dangerous because if you start peeling back the layers, almost all the private sector data to be in the realm of less noisy rely on calibrating with the official data.

Talking data, there's been a lot of talk of late about the BLS number, the jobs numbers, the controversy around that, the revisions. As somebody who takes in all the data, do you think there should be a new approach to how that data is either taken in or released, given how the survey has been put out, the response rate keeps getting worse? How do you take in the BLS data and how do you think it needs to be potentially, the system needs to be revised in the year 2025?

All of those are really important down in my world, in the groovy world of we're getting monthly numbers and how do we figure out what do they say about the economy. I'm completely open. I was on the Census Advisory Commission for six years and have thought a lot about public data. The first thing to note is the public data have gotten noisier. The revisions have gotten bigger because it's noisier, and it's still the best data that that exist. It's the best in the world. It's the best data that we have. It's better than anything in the private sector. That doesn't mean it's perfect, and we should totally be open to how do we improve it, how do we supplement it with private sector sources. So I'm totally open to that. That's different from, should we get rid of it because there are revisions? Absolutely, we should not. The way Personally, I think about it as we go into the next FOMC meeting, I put a little bit more grain of salt in evaluating, especially headline payroll job creation numbers like the one that's been having the revisions, when you're living through a period where there are major immigration changes happening that are unobserved.

We saw the other in 2024, when we had a bunch of immigration coming in that we hadn't been tracking, the monthly jobs numbers were surprisingly high. We're getting 150, Eighty thousand a month. There were some people saying, That's a sign the economy is overheating. How could you generate so many jobs in a month without generating some inflationary pressure? The answer was, Well, because actually the population Immigration was getting bigger in a way you didn't know. If you're going through a period where now immigration is going the other way, be a little careful over indexing on a monthly aggregate number. I usually say what we found last year is that things that are rates are better than things that are raw numbers. And so the four horsemen of truth and justice, as I say, from the job market were the hiring rate rate, the layoff rate, the vacancy rate, and the unemployment rate. Those four gave you a better indication of what's happening in the labor market in terms of business cycle than just the monthly raw jobs created number did. The short answer to your question is, what I do when you're getting some more noise in the official data is not throw away the official data, it's just go get some more measures and try to get a broader sense of where the job market Let's go back to the room where it happens, so to speak.

How do you synthesize all of this? Should we all feel optimistic about rate cuts? I know you allegedly- You stuck it in there in the back half. Totally. I know you can't say much. Polymarket does have 25 basis points down in the next meeting. It's at 82% right now, so a lot of people are feeling pretty positive and optimistic. Would you agree with that?

Well, look, there are two parts of your question. One was, how do you process all of this? And then the second was, and what does that mean? Where's your head at? How we process this is every bank, and especially at Chicago, we have one of the biggest and most respected research departments of all the feds. We'll spend a solid week or week and a half preparing for the FOMC meeting with all the latest data as well as what the trends were. Where does that put me in my head? I don't like tying our hands before the meetings when we've got important data that are coming down the pipe and before I've heard what any of my colleagues have had to say. That said, I would describe before April second, before we got what I consider the dirt in the air episode of tariffs, complicating things, I thought We're pretty much stable, full employment. Inflation was a little above the target, but coming down, and I could see a pretty clear path that it's heading to 2%. I thought it made sense for rates to move down to something like where they're going to settle, that the short rates would go down a fair amount from where they are now or from where they have been.

And that the problem from April forward is if you start doing things like tariffs that are going to potentially increase the inflation rate, at the same time, they're going to make growth slower and make employment look worse. Now you're putting the central bank in the toughest position there is, which is both sides start going wrong at the same time. You got to balance out, well, how long do you think each side is going to last and which one is worse and stuff like that. I feel like we're still in that space If we could just get this dirt out of the air, I think underneath all of that, it still basically looks like what it was pre-April second, which is a strong economy where inflation was trending downward. In that, the more it looks like that, the more comfortable I am saying, again, I think rates should go down a fair amount to something like where they're going to settle. The thing that made me nervous We're getting a little bit of cross currents in the data. Overall, inflation was pretty modest for two, three months, giving me some comfort. Hey, maybe the tariffs, at the end of the day, imported goods are only 11% of GDP.

So maybe we're going to work through this thing and it won't be that big of a deal. The last inflation readings we've gotten show services inflation starting to kick up. Now, I hope that's a blip. If that's not a blip, that's more worrisome because that's probably not coming from tariffs. If the inflation dragon comes back, the central bank has to fight the inflation dragon. There's some people who say that's the only dragon it should be fighting. But everybody agrees that the Fed has to stop inflation from going back.

It's just really quick to double click on what you think. What does fair mean? Can you quantify that? Fair?

Did I say fair?

A A fair amount. A fair amount, yeah.

What does that mean? Here's loosely in my head. I'm not going to commit to exact number, but as you know, the entire FOMC puts out the dot plot each quarter. In that, they ask them, What do you think will be the appropriate rate at the end of this year, at the end of next year? And they ask in steady-state, What's the long run rate? I think the median of those dots is somewhere like three or three and a quarter. That seems like a perfectly reasonable starting point to me. To me, that's a fair bit below where we are today. If we're four and a quarter to four and a half, there's a long way to go before we're to where I think of it as, in our language, neutral, like where the short rates would go. But we just got to get out of this period. Are the critics really saying that if inflation the new months of inflation are coming in at 3 or even 4 or 5% annualized inflation rates, that the Fed should be cutting? We're in a difficult circumstance if we're facing that situation.

How far into the tariff tunnel are we when you look at the data? I mean, do you need to get to the end of the year? Do you need to get to next year? I mean, given that tariffs aren't going- I hope not.

I mean, where are we in the tariff tunnel? I'm thrown because Nicole, in my last answer, she had a look on her face of like, I don't know. You didn't seem persuaded.

I'm persuaded. It sounds like what you've said is that we need at least a percentage down, and we're inching toward that and likely going to have a time.

We're inching toward it. If you got some dust out of the air, that's the path that I was thinking in my mind in this pre-tariff period. Just, convince me we're most of the way through the tariff tunnel, and I'm still feeling okay on these paths. Now, Moshe's tariff tunnel, that's probably the right way to think about it. How long is the tunnel? There's two questions. How much will terrorist raise inflation? And then the tunnel question, how long will it last? In the In the theory, just like Econ 101 theory of tariffs, a tariff is a one-time increase in the price, but it's a transitory impact on inflation. Because if you put in a 10% tariff, you get the 10% of inflation right away, and then there's no more inflation. People will still be upset. You saw that from the inflation we had. Then as inflation came down, people said, Well, I don't care if inflation is heading toward 2%, the prices are 15, 20% higher than they were before you started. People will still be upset. But the central bank, in the theory of a one and done tariff, in a way, should look through it because that's not going to last.

The only problem is this one's not one and it's not done. To the extent that we're going to keep coming back and saying, Okay, well, now we're going to put 50% on India, 50% on semiconductors. We're going apply it to costs of production and parts and supply so that it's no longer just on imported goods, but now it's going to increase the cost of domestic production. Out in the seventh district, where we're the most manufacturing-intensive, as you might imagine, I got an earful from our businesses about that tariff is going to wipe us out. To the extent that we're signing deals and getting the rates down, or we don't enact these, or there's court cases come in and they say, No, you can't have tariffs at eye, then I'm feeling more comfortable. We're back to where we were, and it'll be okay. If there's not an inflationary impact or a significant inflation ordinary impact of terrorists, then why do we care? In some sense, that's just… Tariffs are just one other thing that changes in the background, like economic conditions, like the productivity, growth rate, like anything.

Well, President said that we would be a third-world country without them. But it sounds like that's not what you're seeing.

Look, as I say, I got out of the elections business. If Congress or the President want to pass tariffs in their wisdom, they can do that. My job is just to... If something affects inflation and drives up prices, the law says the Fed has to think about it.

You take in all this data, and as you look into this upcoming meeting and future meetings, is there one thing that has you worried at night that has you up at night? Austin, is there a certain number or statistic that is your North Star?

I often say that the job of central bank is we're the night's watch. Our job is not to sleep at night. There shouldn't be anything that goes wrong that we haven't at least thought through what will we do if X, Y, Z happen. Now, that said, the number that I think about a lot that's the most, for sure, The least talked about most important number is the productivity growth rate of the economy, which is output per hour, output per worker. It's mostly driven by technology. The last two years, it's been outstanding, growing faster than the trend of the last 20, 30 years. When productivity growth is high, that's like what happened in the late '90s. It's wonderful for the economy. Wages can grow faster than inflation. They determine how fast the economy grows, and they relieve the constraints on the central bank. If the productivity growth rate slows down, and there's a lot of research evidence that terrorists, for example, by increasing the cost of production, could have a negative impact on productivity growth, or if you scale Go back investments in science and R&D and those kinds of things in a way that scales down the productivity growth rate, then all of the glorious thing that I just described starts going the other way.

Now, wages can't grow. The real wage can't grow very much. There's a higher risk of inflation for any given growth rate. That's a noisy series on a month-to-month basis, but it's critically super important on a longer basis.

Austin, you are our favorite nerd, funny as sky in Washington. Thank you.

That is a really high compliment. Come back anytime. Now, do you want something you can take to the bank? You want to take something to the bank?

Oh, you listen to the show. Yeah, of course. I went. You're such a good money rehabber. You know, we under episodes with the tip, listeners can take straight to the bank.

If I had one that people can take to the bank, it's Remember that when people talk about interest rates, there's not one interest rate. There's short rates. They influence things like credit card rates and stuff like that. And that's what the Fed sets. And then there's long rates which influence mortgages and treasuries and things of that nature. And the Fed doesn't set those. And so they can go different ways. So if you're an investor, let's say, and you're thinking about, If the Fed is going to cut rates, what's going to happen to bonds? It makes a big difference. What bonds are you talking about? Take that to the bank and remember it. Yeah.

All right. If mortgage rates are up, don't be mad at you.

Don't be mad at me. I didn't do it. Yeah, you're bald. That's exactly right. Thank you. That's exactly right.