Delayed jobs report 'definitely complicates' rate cut decision, Chicago Fed president says

Key Concepts

• September Jobs Report: Released late due to a government shutdown, showing 119,000 new jobs added, the best gains since April.
• Unemployment Rate: Rose to 4.4 percent, the highest in four years, with approximately half-a-million people re-entering the labor force.
• Government Shutdown Impact: Delayed crucial economic data, complicating the Federal Reserve's assessment of the economy, particularly inflation data due to a lack of private sector alternatives.
• Labor Market Environment: Characterized as a "low-hiring, low-firing" environment, with steady but gradually cooling unemployment by historical standards.
• AI Investment Bubble: Concerns about high valuations in the stock market and the potential for a bubble, reminiscent of the late '90s/early 2000s.
• Federal Reserve Policy: Consideration of another rate cut in December, with caution against "front-loading" too many cuts and assuming inflation is transitory.
• Fed Independence: Emphasized as crucial for controlling inflation and ensuring economic stability, despite political pressure.
• FOMC (Federal Open Market Committee): The body responsible for setting interest rates, which makes decisions based on economic outlook and data.

September Jobs Report and Economic Direction

The September jobs report, released with a significant delay due to the government shutdown, indicated 119,000 new jobs were added, marking the best job gains since April. However, the unemployment rate increased to 4.4 percent, its highest level in four years, as roughly half-a-million individuals re-entered the labor force. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, described the report as "better late than never" but noted its outdated nature due to the delay. He characterized the current job market as steady, existing in an "unusual low-hiring, low-firing kind of environment." This contrasts with typical economic cycles where low hiring is usually accompanied by high firing or vice versa. Despite the slight increase, the unemployment rate remains historically low and is gradually cooling.

Impact of Government Shutdown on Economic Assessment

The government shutdown significantly complicated the Federal Reserve's ability to accurately assess the economy. Goolsbee highlighted that the same agencies responsible for collecting jobs data also collect inflation numbers. While private sector sources like state-level unemployment claims and Chicago Fed labor market indicators provide some insight into the job market even when official data is delayed, the situation is more problematic for inflation data. Goolsbee stated, "there aren't nearly as many private sector sources to tell us about what's happening with inflation." This lack of timely and comprehensive data poses a challenge for a central bank that relies on such information for its policy decisions.

Concerns Regarding AI Investment and Potential Bubble

The transcript addresses market anxiety surrounding the surge in Artificial Intelligence (AI) investment, with questions about whether it's developing into a bubble. Goolsbee acknowledged that it's "always hard to figure out if you're in a bubble" but noted the "very high valuations in the stock market" and that it "does have some things that feel in that nature" compared to the late '90s. He also pointed out that AI has been a "major determinant powering business investment." While questioning the appropriateness of a central bank "popping a bubble," Goolsbee stated that "very low interest rates in the face of a bubble threaten to fuel it." The Chicago Fed is monitoring this situation closely for financial stability reasons, as a popping bubble has caused recessions in the past.

Implications for Future Rate Cuts

Regarding the potential for another rate cut in December, Goolsbee expressed a preference for not pre-committing before the FOMC meeting and before receiving further information. He emphasized the need to understand if the current economic situation is a "transitional moment." While he believes that "rates can go down a fair amount from where they are now" in the medium run, contingent on stable employment and a return to 2 percent inflation, he voiced unease about "front-loading too many rate cuts and just assuming that the inflation we have seen is going to be transitory."

Federal Reserve Independence and Political Pressure

The discussion turned to political pressure on the Federal Reserve, specifically referencing recent comments by President Trump criticizing Fed Chair Jerome Powell. Goolsbee strongly defended the necessity of Fed independence, stating, "Economists are close to unanimous that a Central Bank must be independent of political interference when setting the interest rate." He argued that a lack of independence could lead to inflation roaring back, worse growth, and higher unemployment, as the Fed needs to take a "broader view." Goolsbee expressed that it "pains me if we're having public discussions about whether the Fed should be independent. It should be independent." He acknowledged that outside opinions are important and that he takes seriously the arguments made by various individuals, including the President. However, he reiterated that "the decisions have got to be made on the data. And that takes place inside the room of the FOMC meeting."

Conclusion

The interview with Austan Goolsbee highlights the complexities facing the Federal Reserve in its monetary policy decisions. The delayed September jobs report, coupled with the impact of the government shutdown on data availability, creates uncertainty. While the labor market remains steady, concerns about a potential AI investment bubble and the path of inflation necessitate careful consideration. Goolsbee's emphasis on Fed independence underscores the importance of data-driven decision-making, free from political influence, as the FOMC navigates these economic challenges.