Fed’s Goolsbee discusses labor market dynamics, tariff impact, and inflation

Investing.com -- Austan Goolsbee, the President and CEO of the Federal Reserve Bank of Chicago, shared insights on tariffs, inflation, and labor market dynamics during a question and answer session hosted by the Chicagoland Chamber of Commerce today.

Goolsbee addressed the topic of price level targets, explaining that the goal is for incomes to rise faster than inflation. He pointed out that if the price level were to drop, it could be due to a significant deflation caused by falling wages.

In his discussion about the labor market, Goolsbee described it as "epically strong," mentioning the growth in wages and labor shortages. He suggested that the job market remains robust despite uncertainties around immigration policy.

Goolsbee highlighted that over half of the labor force in the past decade has been composed of new workers, many of whom are likely immigrants. He expressed uncertainty about the potential impact of reducing this influx of workers.

He also touched on the impact of various policies, including tax cuts, government spending, tariffs, and immigration. Goolsbee noted that these policies are subject to change and that their effects are part of the administrative policy scenario.

Credit conditions, according to Goolsbee, have been fairly stringent. He also mentioned unprecedented disruptions in supply chains due to the Covid-19 pandemic, making the supply chain more volatile than initially expected.

Goolsbee expressed concern about potential supply shocks and likened the impact of additional tariffs to a "Covid-sized shock". He referenced 2018, when tariffs did not significantly affect national inflation.

The Chicago Fed CEO also underscored the importance of tracking productivity numbers, which he considers a key indicator of economic and monetary policy. Despite expectations that these numbers would return to pre-Covid levels, they have surpassed expectations, potentially changing the way inflation is viewed.

Goolsbee concluded by discussing the effect of deportations on job creation and the impact of unreported immigration on the numbers. He suggested focusing on different metrics to assess the health of the job market, such as the ratio of unemployed to vacant positions, the quit rate, the hiring rate, and the unemployment rate.

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